Sunday, July 13, 2008

why we should (not) learn from Singapore's HDB experiences



Background:

Singapore has carried out one of the most extensive public housing programmes, transforming the city state’s society and landscape in few decades. While at the time of autonomy from the colonial government in 1959 slums and illegal squatter settlements were commonplace and urban poverty a main challenge, homelessness and substandard housing has virtually been eliminated. Although rapid economic growth has been a main contributing factor, the government’s progressive housing policy has channelled significant resources towards its Housing and Development Board (HDB). Since its establishment in 1960, the HDB has initiated the construction of more than 850,000 housing units (alongside commercial and industrial premises, schools and community facilities, and supporting infrastructure) (Yuen, 2005, 25). The proportion of Singapore’s population living in public housing lies around 85%, while an impressive 95% of these own their unit (Yuen, 2005, 5).

Singapore’s housing programme has widely been regarded a success since even the poorest income deciles enjoy access to affordable and quality public housing while heavy subsidization efforts seem sustainable both politically and economically. Nonetheless, when considering the wider applicability of lessons learnt, Singapore’s uniqueness in terms of its size, political cohesion and economic development pose a range of questions. The next section will review the crucial components that made housing policy a success while the last section will aim to extract policy lessons applicable to other contexts.

Singapore success factors:

At the time of the 1960 Housing and Development Act, public housing efforts initiated earlier had made little success – city slums were sprawling, access to basic services and expanding urban poverty posed main challenges. In this context, the newly elected government declared affordable and accessible housing for the poor a top priority. The achievement of this goal rests on a range of key factors:

Political commitment: Firm political commitment has been reflected in the resources devoted to housing as well as the comprehensive approach adopted. Housing has been embedded in a wider social and economic policy framework, while more concretely supportive legislative and political action ensured the feasibility of the HDB undertakings. Commitment has also been proven by the fact that resources have indeed benefited the urban poor and the society as a whole; rent-seeking, corruption or excessive transaction costs seem not to have been a problem in Singapore.

Pragmatic and effective policy implementation: Singapore stands out in its ability to translate planning into policy action almost immediately. Once planning decisions have been made, resources and legislation are mobilized quickly and lines of responsibility spelled out clearly. While a comprehensive planning process certainly supports this aim, two factors stand out:
Centralized housing authority: the HDB is responsible for all aspects of the public housing programme except for the setting of rental and sale prices (undertaken by the Ministry of National Development).
No political opposition: Singapore has a rather strong government facing neither an effective opposition party nor a strong culture of political activism.

Financial assistance: The question of affordable housing is just as relevant as availability when it comes to housing the poor. Since inclusion of the poorest groups was a main thrust of housing policy from the start, dwellings are heavily subsidized on a progressive basis. While low production costs were ensured by building small standardized units on a massive scale, rental rates are set according to households’ earning power and ability to pay. The deficit incurred by the HDB is fully covered by the government’s current budget in the form of grants while its National Development Fund also provides low-cost loans to the HDB (Third World Network, 18). Politically this is justified as a form of wealth redistribution. The sale of HDB units to private households is equally subsidized in order to promote the central objective of a home-owning society. To illustrate, in 2000 low-income households were charged $26-33 monthly rent for a one-room flat and $44-75 for a two-room flat (Yuen, 2005, 12).

Access to finance: In order to create a ‘property-owning democracy’ the government liberalized the Central Provident Fund (CPF) to provide access to finance. Under the 1968 Home Ownership Scheme CPF funds can be used to cover the 20% down-payment as well as mortgage repayments of HDB housing loans. These loans are available at low cost and since CPF savings are mobilized no reduction in disposable income occurs (Third World Network, 20). At the same time, sale prices are heavily discounted so that even households in the lowest income quintile are homeowners.

Land Acquisition: The provision of public housing on such massive scale is contingent upon the availability of land. In 1966 an amendment to the Land Acquisition granted the government powers to take possession of private land for public purposes and thereby both prevented speculation and established a sizable land bank. Since compensation is regulated to be kept at low cost with little fluctuation, the HDB can acquire public land from the government at low prices.

Economic growth: Arguably, affordable housing for the poorest households would not have been possible without parallel economic growth. The government has recognized this from the start and devoted much effort to promoting employment creation and sustainable growth. Importantly, the massive housing investments and expansion of the construction industry have contributed to economic growth.

Policy lessons:

The Singapore experience provides a rich case study involving both innovative and controversial policy measures. Due to the country’s specific environment, however, caution must be exercised when aiming to replicate its success.

Political commitment is certainly a prerequisite for successful housing policy. Particularly in developing countries improving the livelihoods of the urban poor is often not a priority due to the little political influence they have. Poor and rich countries alike should communicate to constituencies the positive externalities associated with housing the poor. At the same time mechanisms are needed to ensure transparent resource allocation.

Singapore’s high degree of political pragmatism is more controversial as democracies in general face a more diverse political reality. Nevertheless, some policy lessons can be drawn:

  • Informed planning can greatly facilitate the implementation process.
  • A process of constant review and policy refinement is crucial to enhance knowledge and programme quality.
  • Good management and clear responsibility structures reduce transaction costs and duplication of efforts.
  • The inclusion of all social groups enhances sustainability and reduces political opposition.

The high degree of subsidization might not be feasible in other countries as (i) housing competes with other sectors for government expenditure, (ii) developing countries in particular rely heavily on external funding, and (iii) ideological differences exist regarding the balance between state intervention and market forces. Nonetheless, three generalizations can be offered:

  • Subsidies should be progressive so that the neediest receive the greatest share. There should thus be different housing categories, while their price should be proportionate to ability to pay. This implies the need to develop a mechanism of identifying and targeting the poor, a difficulty that developing countries might face.
  • The level of government responsible for administration and maintenance should receive fund transfers from higher levels to make subsidization compatible with maintenance.
  • Direct competition with other sectors for funds should be limited to enable long-term planning.

Access to finance is crucial to encourage ownership, making housing policy more sustainable in the long run:

  • Security of tenure is crucial for reducing investment risks and encouraging home ownership, particularly in developing countries.
  • In order to include the poor in the scheme, loans have to be accessible to low-income groups and should not significantly reduce disposable income.
  • An upgrading scheme should ensure a filtering process which will raise overall quality of living.

Extensive acquisition of private land is a very controversial policy option not necessarily recommendable. Especially in poor countries with weak accountability structures such legislation opens opportunities of abuse. Points of learning are:

  • Enforceable measures to prevent land speculation are needed.
  • Transparency in both the use of public land and in the allocation of housing units fosters political support.
  • The use of public land should be rationalized and brought in line with policy priorities.

It seems needless to say that the promotion of economic growth raises living standards and the demand for decent housing. Housing is one social policy sector which can be instrumental in distributing this wealth more equitably. It is also worth pointing out that economic growth raises tax revenues upon which public housing finance relies.

Conclusion:

Public housing in Singapore provides an exceptionally integrated and consistent approach towards policy formulation and implementation. Singapore cannot, however, serve as a housing policy blueprint but rather illustrates that the debate over public versus private provision is much less relevant than spelling out actual policy principles and guidelines.

2 comments:

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