Singapore’s Solution to Housing Affordability

Singapore and New Zealand have comparable populations but New Zealand has about 370 times the land area of Singapore. Singapore manages to provide adequate housing for its citizens but New Zealand has an affordability crisis; how is this possible?

In any large city in the developed world the market price of centrally located prime dwellings is quite high and usually only accessible to the wealthy. This applies to Singapore as well as Auckland. Where there is a free market the prices gradually decrease with distance from the centre such that beyond the downtown live the middle classes with their mortgaged homes. However where only free market forces rule the land beyond the existing city limits is acquired for speculative purposes and sold to developers. These developers are, effectively, venture capitalists and they are dependent on market forces allowing them to sell on for a profit. All of this creates a cycle which supports high prices for properties. Those who already have a stake such as existing homeowners also have a vested interest in higher house prices since it affects their net worth. This then is the situation Auckland and other cities in New Zealand find themselves in.

In Singapore the HDB (Housing Development Board) dates from 1960 and was set up to ensure affordable housing for the population (which incidentally has increased from 1.6m to 5.9m since then). There are a number of key issues:

— The HDB acquires development land compulsorily at prices it sets, which is completely unrelated to any hypothetical market price

— The HDB contracts out the construction of dwellings to its specifications covering a variety of apartment sizes

— The HDB achieves low average construction costs that benefit from having standardised procedures and effectively mass production.

— Over several decades some 25,000 dwellings a year were constructed

— Due to the limited land area available buildings often have 20 floors or more

— About 80% of HDB dwellings are for sale with the remaining 20% rented out to low income households

— Buyers acquire a 99 year lease (which probably approximates to the useful life of the building).

— An individual may only own one HDB apartment and a HDP apartment can only be sold to someone who is HDB eligible (essentially a citizen not already owning a HDB apartment).

— The HDB aims to break even so apartments are sold at cost.

The HDB accounts for about 80% of the housing stock in Singapore. The other 20% is in the private sector and is occupied by wealthy locals and ex-pats and is priced in the same range as similar housing in Milan or Paris or any major city.

The key difference between Singapore and New Zealand is that it denies any speculative value to land owners and it takes the venture capital element out of the building process for 80% of the city’s housing stock. Many countries have affordable and social house building programs but they tend to be limited in scope and are often stop-start and ad-hoc. Singapore’s is extensive and they do it for the long haul — that is the key.

Of course, it’s not just New Zealand — lots of countries have housing affordability crises. So, what is preventing other countries from following Singapore? Arguably Singapore only developed this system because it had to — there was not enough land for anything else. However, we now know that having lots of land does not mean that this system would not be of benefit.

Were a country to move in this direction it would run into resistance from landowners, developers who would become mere contractors, existing homeowners who might see their home values affected and other vested interests. One could imagine the Republican Party in the US remarking — isn’t that just socialism? Well it could be called that but I don’t see why the well off in the US would prefer the problems associated with homelessness and lack of affordability to actually solving them. Also note that Singapore is one of the world’s most successful capitalist economies. They compete in the internationally traded sectors and use the State to fix problems in the domestic sector.

Countries needn’t aim to go as far as 80% in this type of ownership as in Singapore but could set a lower target such as 50%.