The Singapore Solution Part I: decommodifying land markets

The Week in Housing 29/10/21

In a recent discussion in my undergraduate module Social Justice and the City, some students asked the question of why we don’t have a housing system based on 100% social housing. It’s not hard to understand why such a question might emerge, given that many of the problems in housing systems seem to arise from the ways in which land, which Polanyi famously called a ‘fictitious commodity’, seems ill suited to market mechanisms of distribution and allocation. I genuinely believe that the issues in current housing systems, which in my view are of a deep and structural nature, will lead to a radical rethinking of housing policy in the coming decades. We are already seeing some signs pointing in this direction: Who would have said even a decade ago that Berlin would vote to expropriate rental housing en masse, or indeed that a Fianna Fail/ Fine Gale government would regulate rents and introduce cost rental housing?

In thinking about the possibility of a complete decommodification of the housing system, one place we can look to is Singapore. In the city-state, which in many respects is highly neoliberal, 90% of land is state owned, 90% of housing is public housing, and 90% of households are homeowners. Housing supply and housing affordability have been adequate and stable for much of the last five decades.

Moreover, it’s no coincidence that one of the most decommodified housing systems in the world has developed in a place which is both extremely dense and has relatively high average incomes. It is the interaction of these two qualities - scarcity of land (and hence constrained supply) and high demand - that tends to lead to so many problems in housing systems, including our own. Given these pressures are only likely to get worse over the coming years and decades, is it time for, to paraphrase the Brexiteers, a Singapore-on-Liffey?

In this week and next week’s Newsletter, I want to take an in-depth look at Singapore’s housing system to understand the possibilities of housing and land decommodification. Most of what you’ll find in these pieces is based on the work of Sock-Yong Phang, a leading scholar of Singapore’s housing system. At the end of this piece I provide a list of references to his work on the issue.

Why decommodification?

I’ve discussed in these pages before some of the problems that are peculiar to land and real estate markets. Political economy thinkers have long noted the idiosyncrasies associated with these markets, and pointed out the inefficiencies and injustices associated with the private ownership of land in the context of capitalist economies. Land is an inherently scarce resource, and each parcel of land is more or less unique. As a result land takes on quasi-monopolistic characteristics, which allow landowners to extract what economists call “economic rent”. Land ownership is, in and of itself, not productive (i.e. makes no contribution to the productive economy in terms of investment, economic development), but instead is almost parasitic in the way it captures value derived from public investment and economic development. Moreover, it has long been argued that the scarce nature of land combined with the fact that it is immobile, can make housing markets supply constrained.

Thinkers like Henry George railed against the economic inefficiency and injustice associated with land markets. But more philosophical thinkers have also challenged landownership. In the 18th century, Rousseau had this to say:

“The first person who, having enclosed a plot of land, took it into his head to say this is mine and found people simple enough to believe him, was the true founder of civil society. What crimes, wars, murders, what miseries and horrors would the human race have been spared, had someone pulled up the stakes or filled in the ditch and cried out to his fellow men: “Do not listen to this imposter. You are lost if you forget that the fruits of the earth belong to all and the earth to no one!”

All human activity occurs in a place. We are inherently dependent on places for all aspects of social life. Ownership of land, is ownership a place. Monopoly ownership of place gives landowners extraordinary political power, which in part explains why landownership has been central to political power for most of human history. Of course capitalism has in some ways moved beyond landownership as the ultimate source of political and economic power, and yet it remains with us as a kind of relic of the past, something which remains unquestioned, despite the fact that most private landownership ultimately arose from some act of violent dispossession (e.g., Cromwellian conquest in Ireland).

So there are very good reasons to question private landownership, and relatedly the private housing market. But doing so can be difficult because it is so much part of our culture, and because examples of alternatives are hard to come by. That’s where Singapore comes in.

There are three core elements to Singapore’s housing system: land acquisition, the Housing Development Board (HDB), and the Central Provident Fund (CPF). These three elements correspond, respectively, to the three key elements of any housing system: land, development, finance. However, in Singapore’s case, none of them operate according to market mechanisms. Let’s start with the issue of land acquisition

The Land Acquisition Act

Singapore gained independence in 1959, was briefly a part of the Malaysian Federation, before becoming an independent city-state in 1965. At the time its housing system was characterised by a massive shortage of housing, slums, overcrowding etc. The People’s Action Party, which has been in government throughout the history of the independent city-state, recognised that the prerequisite for a successful programme of public housing was access to land. The Land Acquisition Act was introduced in 1966. Then Prime Minister Lee Kuan Yew stated that the act had among its objectives:

“First, that no private landowner should benefit from development which had taken place at public expense, and secondly, the price paid in the acquisition for public purposes should not be higher than what the land would have been worth had the government not contemplated development generally in the area”

He further stated that he “saw no reason why private landowners should profit from an increase in land value brought about by economic development and infrastructure paid for with public funds”. There are certainly echoes of Henry George here.

The Land Acquisition Act gave the government extraordinary and sweeping powers to acquire land compulsorily for almost any public purpose, including the provision of housing. Land could be acquired at below market prices. In the 1960s, this made possible a huge programme of slum clearance and the construction of new, high rise apartments.

Phang gives this example of early, sweeping intervention:

“On 25 May 1961, a huge fire broke out in the Bukit Ho Swee squatter district which rendered about 16,000 people homeless. Housing the victims of the fire became the HDB’s first major challenge. The government compulsorily acquired the burnt out land as a site for 12,000 low-cost flats and promised to complete the first blocks of flats within nine months. The first five blocks of flats were completed by February 1962 and all 16,000 people had lost their homes in the fire had been rehoused on same site by the end of 1964”

By the end of the 1960s, 44% of land was owned by the state. By 2005, this had increased to 90%. Although compulsory acquisition of land was politically contested, the policy eventually won legitimacy, in part because it proved to be effective in terms of the provision of housing, and in part because the main losers were a small minority of landowners.

The Housing Development Board and Central Provident Fund

The second pillar of the Singapore housing system is the Housing Development Board (HDB), established in 1960 to provide decent homes for all. The HDB is funded by the government via loans which it uses to do two things: first, housing development; second, the provision of mortgage loans to households. The HDB is enormously active and ambitious, undertaking the construction of whole new neighbourhoods and suburbs and dominating Singapore’s housing system for the last half century. HDB dwellings are sold to households at below market rates, thus ensuring affordability.

The provision of dwellings on state-owned land is of course crucial to the HDB’s ability to provide housing at below market rate, and to maintain adequate levels of supply.

Initially eligibility criteria meant dwellings were targeted primarily at low income families. The criteria have been broadened over the decades to include a much wider proportion of the population. However, they are limited to Singapore citizens and what are called ‘permanent residents’, and therefore many migrants are excluded.

As well as providing housing at below market prices (and ensuring adequate supply), HDB also provides mortgages, usually with 80% LTV ratio and with a 25-year term. HDB thus supports homeownership, and has been central to Singapore achieving one of the highest homeownership rates in the world at approximately 90% of households. Supporting homeownership has long been seen by the People’s Action Party as crucial to political stability, in common with many other homeownership societies.

The final piece of the puzzle is the Central Provident Fund, a mandatory state savings scheme which ensures adequate capital is available to finance housing. Both employees and employers in Singapore are required to allocate a proportion of their income to the CPF, currently around 20% of wages for employees. As a consequence Singapore has one of the highest savings rates in the world. Households can use the CPF to access a mortgage deposit for the purchase of HDB dwellings, thus supporting access to HDB dwellings.

The three pillars of Singapore’s housing system interact to make possible a primarily decommodified housing system, what Phang calls a ‘neoclassical economists’ nightmare’. Mandatory household savings, access to HDB mortgages, and access to HDB dwellings have allowed generations of Singapore citizens to access homeownership at affordable prices, despite one of the highest levels of population density in the world. HDB housing is generally high quality, and there is no stigma associated with this form of housing as the vast majority of the population lives in such housing.  As we’ll see next week, however, it is not without its challenges.

Events

A reminder that the Housing Agency’s 2021 conference is coming up from the 8th till the 12th of November. I’m most looking forward to the sessions on housing affordability (on the Tuesday) and housing supply (on the Thursday). Next week is a busy week with housing events. Myself, Rory Hearne, Valesca Lima and others will be speaking at this online public event, organised by An Rabharta Glas, looking at the housing crisis and how to solve it. Focus are hosting a seminar on homelessness in the South East region. And, finally, UCD’s Centre for Irish Town’s is hosting a seminar on community participation in town planning. Back in May, Trinity Geography Dept. organized the Conference of Irish Geographers, the keynotes are now all available to watch online, including one by Tom Slater on rent controls (on the subject of rent controls, check out this episode of Freakonomics for an interesting summary of the economic evidence).

What I’m reading

Sebastian Kohl has published what looks to be a fascinating paper looking, on a lot of empirical detail, at the impact of mortgage credit on housing supply. This report from the Centre for Homelessness Impact looks at the role of rent subsidies in England (plenty of lessons here re HAP). And for something a bit different, but every bit as important, a fascinating new article presenting empirical research on the impact of community-led housing on homelessness.

References

Phang, S. Y. (2007). The Singapore model of housing and the welfare state. URL: https://ink.library.smu.edu.sg/soe_research/596/

Phang, S. Y., & Helble, M. (2016). Housing policies in Singapore. ADBI Working Paper 559. Tokyo: Asian Development Bank Institute. Available: http://www.adb.org/publications/housing-policies-singapore/

Phang, S. Y. (2016). Singapore's housing policies: Responding to the challenges of economic transitions. In Singapore's Economic Development: Retrospection and Reflections (pp. 221-248).

Phang, S. Y., & Kim, K. (2013). Singapore's Housing Policies: 1960-2013. url:

https://ink.library.smu.edu.sg/soe_research/1544/

Phang, S. Y. (1996). Economic development and the distribution of land rents in Singapore: a Georgist implementation. American Journal of Economics and Sociology, 55(4), 489-501.