1. Public Housing Policy in Singapore
An overview and critique
Vikas Sharma, PMP®, Associate Director
Public Sector & Government Practice
Frost & Sullivan
September, 2013

2. Public Housing Policy in Singapore 2014
SETTING THE CONTEXT
The Singapore of yore painted a very different picture from today’s first-world, bustling metropolis with high-rise
residential buildings dotting the skyline. In 1960, almost one-third of Singaporeans lived in dilapidated slums and
squatter-dwellings with inadequate sanitation. Today, Singapore has among the highest home-ownership rates
globally, with 90% of resident households owning homes. Credit for this transformation goes chiefly to Singapore’s
public housing policy, spearheaded by Housing & Development Board (HDB), the designated government agency
that currently houses 82% of all resident households in its flats. Policymakers’ role has constantly evolved, from
providing low-cost homes to counter systemic shortages; to greater emphasis on aesthetics, and building selfcontained communities. This paper provides an overview and evaluation of Singapore’s public housing.
SUBSIDIZING PUBLIC HOUSING IN SINGAPORE
From the start, Singapore’s policymakers have been wary of the pitfalls of government-financed entitlement
programmes. There is incessant emphasis on ‘earning one’s keep’. However, housing is one area that is highly
subsidized, owing to positive externalities of home-ownership:
1) Proper housing redcuces public health costs otherwise incurred from unhygienic conditions in inferior
dwellings
2) Academic literature routinely associates home-ownership with lowered rates of violent crime, vandalism,
school drop-out, and drug-abuse
3) Home-owners exhibit greater community activism and maintain public goods/services better to
appreciate their housing assets
4) Home-ownership lays down roots and fosters belonging; important for nation-building

3. Public Housing Policy in Singapore 2014
5) Subsidized home-ownership can foster goodwill for the ruling government and encourage political
stability; which has greatly aided Singapore’s economic rise
Efficiency Issues
Below is a brief discussion on some efficiency issues involved:
1) By definition, positive externalities dictate that benefit to individual is smaller than total benefit to
society; and hence, if left to the free market, less than efficient (socially sub-optimal) amount would be
consumed. Hence, government subsidy is needed for efficiency
2) If the sole aim was redistribution, handing out cash subsidies would be the most efficient mechanism.
However, Singapore adopted in-kind transfers to ensure a minimum acceptable living standard. Left to
market, some people with constrained resources may opt for very low-quality housing (slum-dwellings)
and dedicate cash subsidy to other consumption. In-kind transfers, while paternal in their structure, help
prevent this undesirable outcome
Equity Issues
Below is a brief discussion on some equity issues involved:
1) Vertical Equity: Singapore’s housing subsidy seems vertically-equitable. Housing grants shrink with rising
household incomes. Similarly, when buying from HDB, smaller flats (2/3 room flats meant for low-income
groups) attract the highest price subsidies while top-end flats (Executive Condominiums) are sold at closeto full price
2) Horizontal Equity: With housing grants and subsidies aligned to income-levels, eligible buyers can be said
to experience horizontal equity. However, the definition of ‘eligible’ is key. A case could be made for
current policies not being equitable to peripheral sections (singles or same-sex couples), even if they are
otherwise eligible by virtue of citizenship status and income.

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IMPLIED VALUES AND ACHIEVEMENTS
Singapore’s housing policy is built on certain implied values, and geared towards achieving well-defined social
goals and stability. This section discusses these values and efforts towards achieving them.
a) Ethnic Integration & Stability
HDB introduced the Ethnic Integration Policy (EIP) in 1989 to promote integration among the various races.
Housing blocks/neighborhoods have pre-defined ‘quotas’ for the key racial groups (Chinese, Malays and Indians &
Others). Once the quota for his ethnicity is reached in a block/neighborhood, a buyer is not allowed to purchase
there. The underlying aim is to ensure a balanced ethnic mix in public housing estates and prevent racial enclaves
from forming. While racial ‘integration’ is hard to judge, EIP’s stability agenda has worked, with no major racial
conflagrations witnessed among residents since introduction.
b) Social Stability by Encouraging Family Units
Singapore’s policy-makers have long espoused the notion of family being the basic building block of social stability.
With an ageing population (median age to rise to 47 in 2030) and declining fertility rates, government measures to
encourage families to stay together and new family units to form, have stepped up across agencies. HDB’s policies
have echoed this emphasis – schemes for fiance/fiancee, restrictions on age and house-size for single applicants,
subsidies for applicants living with/near their parents, and multi-generational flats to encourage applicants to stay
with elderly parents.
c) Creating Wealth via Home Ownership
Home ownership as an effective means of building wealth among low and middle income households has been
propounded by seminal academic works such as Oliver and Shapiro (1990); the central tenet being that the longterm saving discipline to pay off mortgages and build equity, raises homebuyers’ wealth. Singapore’s policies have

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reflected this ideology. By allowing compulsory CPF contributions to be used for downpayments and loanservicing, policymakers made it possible for even low-income households to aspire to home-ownership, since they
did not have to stretch their after-CPF cashflows excessively. The results have been positive with Singapore’s
th
average household wealth ranking 8 globally at USD 281,800 in 2013 by Credit Suisse’s Global Wealth Report. This
represents a 150% increase from 2000; with the rise mostly attributable to high savings-rate and asset
appreciation.
d) Political Stability
Since gaining independence in 1965, Singapore has had People’s Action Party (PAP) as the ruling government. This
political stability, while derided in some circles as ‘authoritarian democracy’, has undoubtedly been crucial to
building investor confidence, a cornerstone of Singapore’s economic success. Also, lack of political turmoil has
afforded the government a long-term view, allowing for non-populist, pragmatic, and holistic policy-making. It can
be argued that policymakers’ success in raising home-ownership rates lent significant political legitimacy to PAP
over the years and nurtured Singapore’s political stability.
e) Fiscal Stability
As Housing Loan Provider
HDB flats can be financed via loans from HDB (HDB Concessionary Rate Loan) or from financial institutions.
Compared to bank loans, HDB loans have more stringent eligibility requirements (flat type, citizenship, income
ceilings, ownership of other properties, marital status etc.). However, they have several advantages over bank
loans that encourage affordability and instill fiscal stability among borrowers. Some of these are as below:
1) Borrowers can pay their entire downpayment from their CPF monies (Ordinary Account), with no
compulsory cash component. On the other hand, bank loans stipulate at least 5% of house value to
be paid in cash (raised to 10% if loan tenure > 30 years or extends past age 65)

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2) Borrowers can raise more financing than with bank loans. For their first HDB loan, borrowers can
finance upto 90% of house value, contrasted with upto 80% for bank loans
3) HDB loans impose zero penalty for partial or full repayment before tenure end, hence encouraging
borrowers to increase equity and reduce debt faster. In contrast, bank loans typically have lock-in
periods during which any repayment above agreed amount results in a penalty (to compensate for
banks’ lost interest earnings).
4) HDB loan interest rates are pegged to the CPF rate, which has stayed constant for over 10 years.
Hence, they offer more rate-stability and better cashflow planning than bank loans whose interest
rates can be much more volatile
5) HDB has higher tolerance of errant borrowers than financial institutions. HDB is known to frequently
grant deferment of monthly payments if borrowers can prove financial hardship, and even assist in
finding alternative residence options for long-term delinquents
As Regulator/Principal Developer
HDB, in its capacity as the principal developer and government regulator for the public housing market, has taken
several steps to enhance fiscal stability among borrowers. Some of them are:
1) In 1981, HDB introduced a mandatory mortgage-reducing insurance scheme called Home Protection
Scheme (HPS) for all buyers of HDB flats that use their CPF monies to pay their housing loans. The
insurance must cover 100% of the loan, with the premium depending on repayment period, age of
insured borrower, loan amount etc. Through HPS, HDB helped shield borrowers and their families
from financial duress in the event of the borrower’s permanent incapacitation or premature death. In
January 2012, HDB slashed HPS premiums by 12% to increase its affordability
2) The property market in Singapore has been on a tear upwards in the aftermath of the 2008-09
financial crisis. Low interest rates and capital inflows into real estate led to prices appreciating by as

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much as 50% and 70% respectively for HDB resale flats and private properties. This has raised
concerns over the affordability of houses for first-time buyers and of a speculative bubble forming in
the market. HDB is tracking these developments and intermittently introduces ‘cooling measures’ to
bring prices back in line. Some key recent measures include:
a.
Additional Buyer’s Stamp Duty (ABSD) revised upwards (except for first-time citizen buyers).
b.
Permissible loan amounts (Loan to Value: LTV) revised down from 60% to 50%/40%
respectively for second/third property loans.
c.
Mortgage Servicing Ratio (MSR) for housing loans capped at 30% of gross monthly income
for HDB and bank loans
d.
Banks instructed to assess and ensure that borrowers’ Total Debt Service Ratio (TDSR) was
capped at 60% of gross monthly income
e.
Maximum tenure of HDB loans brought down to 25 years, 30 years for HDB flats financed by
bank loans; and 35% for all others
f.
SPRs eligible to buy resale HDB only after 3 years from obtaining SPR status
These stabilization measures have started showing results with HDB Resale Price Index (RPI) declining for the last
two quarters of 2013, and private property prices declining in last quarter of 2013. In the 2014 Budget, the
government reiterated its commitment to cooling measures, signaling that they will be continued for the time
being. It is to HDB’s credit that these measures mostly target foreign investors and residents who already own
homes. Coupled with restrictions on SPR house purchases, these measures should help increase affordability for
first-time citizen buyers, the key segment for Singapore’s housing policy.
f) Planning Long-Term and at a Macro-level
Having a government agency as the principal property developer has afforded Singapore the ability to plan
holistically and have a long-term view. With its considerable financial and jurisdictional backing, HDB has had the

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means to develop self-sufficient townships boasting commercial and recreational facilities throughout the islandstate, instead of concentrating development to more profitable ventures/areas (as could have been the case if
housing was exclusively privatized).
g) Reinforcing Citizenship Privilege
At 38% of total population (December 2011), the high proportion of foreigners in Singapore is oft-quoted and
frequently a matter of ground-level dissatisfaction among citizens. Of these 2 million foreigners, 0.54 million are
Permanent Residents (SPRs). HDB housing grants are available to households where both members are citizens
(SC/SC) or where one member is a citizen and the other an SPR (SC/SPR). While earlier the grant quantum was the
same for both household types, HDB has now reduced it by SGD10,000 for SC/SPR to reiterate focus on citizens
over foreigners. Another similar policy was introduced in August 2013, whereby SPR households are now required
to wait at least 3 years before they can buy resale HDB flats.
CHALLENGES AND CRITICISMS
As most accounts of policymaking would suggest, there are no unequivocal successes. This section outlines some
key criticisms and challenges facing Singapore’s public housing policy.
a) Housing at the expense of retirement security
The CPF Board’s motto/tagline reads ‘Saving For Retirement’. However, in practice, the use of CPF savings has
strayed away from securing retirement needs. CPF’s intimate link to housing in Singapore has seen retirment
balances fall short as members withdraw increasing amounts to finance their housing needs. Using CPF for housing
while risking retirement is primarily attributable to the incessant upward-marching housing prices. Firstly, higher

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prices have meant that buyers need increasingly larger amounts to secure home-ownership, prompting them to
withdraw more CPF savings. Secondly (and more importantly), the large capital gains that rising prices have
brought sellers for a long period now, have entrenched housing as a form of investment in general perception.
With Singapore’s general aversion to inter-generational transfers (no tax-financed pensions for elderly), residents
see capital gains realized from selling tbeir houses as a way to finance their retirements. Since returns from
property prices have generally dwarfed CPF interest rates or those achievable from low-risk financial instruments,
it has seemed a safe bet to withdraw CPF monies to buy as much house as possible. However, this seemingly foolproof plan can come to a screeching halt if property prices turn lower. In fact, Singapore’s ageing population
means many more elders selling in the recent future to raise retirment funds, which could further exacerbate price
drops and adversely impact proceeds.
b) Unequitable social engineering
HDB cannot be faulted for staying consistent with policymakers’ long-held reverence for family units as Singapore
society’s cornerstones. However, the increasing numbers of peripheral segments such as singles should not be
ignored. According to SingStat, among those aged 25-29 years, 76% of males and 56% of females were single in
2011, up significantly from 65% and 41% respectively in 2001. While HDB has started recognizing them in its plans
(allowing purchase of new 2-room BTO flats in non-mature estates), more could be done to encourage homeownership among singles and give them strong roots locally.
c) Speculative gains eroding work ethic
Upward marching property prices can bode ominously for Singapores’traditionally strong work ethic and
enterprise. With housing prices increasing more rapidly than real wages for a number of years now, it is possible
that residents begin to consider speculative investments in property as a superior and more reliable way of earning
income than their own toil. To give credit where its due, HDB’s cooling measures are working towards reducing
this speculative euphoria.

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d) Policies impeding talent attraction
HDB’s steadfast focus on increasing home-ownership has overlooked the development of a HDB rental market.
With foreign professionals mostly renting private condominiums in the past, this wasn’t a major issue. However, in
the post-GFC environment of watered-down expat packages, rentals rising in lockstep with high propery
valuations, and cooling measures that put restrictions on renting out HDB flats; there is concern that Singapore’s
attractiveness to competent foreign talent may be eroded.
e) Racial quotas need to be reviewed
There is concern that the EIP does not accurately reflect the ground situation, in terms of quota allocations and
race classifications; and can negatively affect housing prices.
1) The EIP has three categories – Chinese, Malay, and Indian & Others. The proportion of ‘Others’ in the
overall population has increased from just 1.4% in 2000 to almost 3.5% in 2010, prompting some
analysts to ask if a separate category is warranted for them.
2) In 2010, HDB’s maximum ethnic limits for neighborhoods stood at 84% (Chinese), 22% (Malay) and
12% (Indian & Others), which is at odds with the actual split of residential population – 74.1%
(Chinese), 13.4% (Malay) and 12.5% (Indian). These numbers suggest that maximum ethnic quotas for
Chinese and Malay are almost 10% higher than actual representation, while the limit for Indians &
Others is in fact 0.5% lower than actual representation
3) EIP can cause race-related pricing differentials in public housing. For instance, in an estate that has
reached its Chinese quota, a non-Chinese family needing to sell their house urgently may have to
compromise on the asking price, given the much smaller pool of non-Chinese buyers
f) Politicization of HDB
Political neutrality of the public sector is a tenet that Singapore’s ruling PAP has emphasized on several occasions.
However, the validity of this assertion has come into question, most notably in recent elections when the PAP has

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openly declared that opposition-held constituencies could not expect equal priority in upgrading of public housing
infrastructure. This is contentious since public housing upgrades fall under the purview of HDB, a public sector
agency.
CONCLUSION
The most widely-understood challenge of course is the rampant increase in property prices that is putting houseownership beyond the means of residents. To their credit, Singapore’s policymakers have introduced a slew of
cooling measures already, and they have started showing effect. As for marginalized segments like Singles, it can
also be argued that HDB’s stance is softening, as reflected in new HDB schemes. However, in the author’s opinion,
the most urgent problem traceable to Singapore’s housing policies is that of inadequate retirement-readiness.
Stipulating a CPF Minimum Scheme doesn’t automatically guarantee people’s ability to set aside that sum, having
already withdrawn excessively for housing. While it may further cement Singapore’s image as a ‘nanny state’, the
author believes that reducing CPF available for housing (by diverting higher contributions to Special Account and
Medisave Account) may be one among very few plausible options.