The Affordable Housing Challenge
The issue of affordable housing cuts across geographical as well as economic lines. The problem has become particularly pronounced both for cities in developing countries facing rapid urbanization and in global cities that are magnets for immigration and global capital . A shortage of adequate and affordable housing for low- and middle -income households has risen to the top of the social and political agenda across cities in China and India , as well as in hot spot cities of London , Paris , New York , San Francisco, Vancouver , Toronto , Sydney , Melbourne , and Hong Kong.
This is not surprising for a number of reasons: economic and population growth is unevenly distributed across metropolitan areas, there has been increased global capital flows into real estate investments , and housing constitutes the largest expenditure item for the majority of households. Tenure choiceāwhether to rent or ownāis a major financial and investment decision for most households. In many Asian countries, there is a societal premium placed on homeownership and it is homeownership affordability that is a major source of concern for young households. Owning a property, however, often requires an overall outlay that involves multiples of the annual income for the average household. Given the high cost of a long-life asset, and the attendant long-term commitment of a mortgage as well as the substantial transaction costs involved, the decision to purchase a property is not to be taken lightly.
Government Interventions for Affordable Housing
To resolve the problem of housing affordability, government interventions are widely accepted as necessary in order to channel resources into housing and cope with the challenges of market failures, cross-border capital flows, misaligned incentives, and, paradoxically, regulatory distortions and failures. Governments intervene in housing finance, production , transaction, and service delivery processes in multifaceted ways that differ from country to country. Phang (2013) provides a review and discussion of the range of well-intended housing market interventions that have been utilized, with outcomes that have, on occasion, been unexpected. In some contexts, such as the US subprime mortgage crisis of 2007, the consequences have been devastating, requiring massive interventions by governments. This raises policy questions on the appropriate role of the government in the housing market, again with answers that vary greatly across the world.
The International Monetary Fund (IMF) (2011) estimated an index of government participation in housing finance markets for 33 advanced and emerging economies. The index is a measure of the breadth of government intervention and is based on the presence or absence of the following eight policies to facilitate homeownership : (i) subsidies to first-time or other buyers up front; (ii) subsidies to buyers through savings account contributions or through preferential fees; (iii) subsidies to selected groups, low income ; (iv) provident funds early withdrawal for house purchase; (v) housing finance funds or government agency that provides guarantees/loans; (vi) tax deductibility of mortgage interest; (vii) capital gains tax deductibility ; and (viii) state -owned institution majority market player greater than 50%. Amongst the 33 countries in the IMF study, Singapore topped the rankings for government participation in both housing finance as well as homeownership .
Another recent study by Renaud et al. (2016) compared government interventions in housing markets in six East Asian economies, namely, Japan , China , South Korea , Taiwan , Hong Kong, and Singapore, paying particular attention to housing supply interventions. The authors assessed Korea to have the most intense degree of government intervention into real estate, with Singapore second, and Hong Kong the least. Amongst the six economies however, Singapore was exceptional in relation to the share of housing built by the government agency, the Housing and Development Board (HDB), as a proportion of the total housing stock. While the 2016 figure is 73% for Singapore, the figures for the other economies are much lower: Hong Kong (29%), China (< 10%), Korea (5%), and Taiwan (1%). Singapore is thus unique in its housing supply regime in both the dominance of the HDB as a housing developer and the sale, rather than rental, of HDB-supplied housing on a 99 -year leasehold basis. The dominance of the government has not precluded a vibrant resale market as owners of subsidized new HDB flats are able to sell their housing at market prices after a minimum period of 5 years of occupancy.
Housing Affordability in Singapore
Introduction
From the general backdrop outlined briefly above, I turn now to the thrust of the present book. Put simply, it focuses on the role of innovative policies adopted to solve the housing affordability problem in the Singaporean context. However, it is hoped that some of the policies that have been implemented in Singapore would not only be of general comparative interest to other jurisdictions but might also prompt possible practical reforms (by way of ideas, if not direct application) in some of these jurisdictions as well. In this last-mentioned regard, a caveat is of course necessary. In particular, it is acknowledged that each jurisdiction , however, is different and the policies implemented to deal with the problem of housing affordability must necessarily be relevant to the local circumstances of the jurisdictions concerned.
In the next section, I will ...