Speech by Minister Desmond Lee at the Singapore Economic Policy Forum 2021

Oct 29, 2021

Good morning. Thank you for inviting me to the 14th Singapore Economic Policy Forum.

Let me first start by congratulating our winners and finalists of the Outstanding Economics Teacher Awards. You have made the effort to find new ways of engaging students amid the unprecedented pandemic, including by helping them to adapt to Home-Based Learning, and using technology to help your students understand and grasp economic principles. This reflects your ability to teach and inspire. As a discipline that studies the allocation of scarce resources, among other things, Economics provides many useful insights for addressing the challenges of our time, such as the pursuit of sustainable development. Teachers like you play a crucial role in guiding students to learn and apply economic tools and concepts to these issues in the real world. So congratulations, and well done to all our award winners!

I wasn’t trained as an economist myself, but at the Ministry of National Development, my colleagues and I rely on economic thinking, alongside many other disciplines, as we plan our city. And we supplement this with extensive engagement with stakeholders, experts, academics, and researchers, as well as communities and people on the ground who are impacted by our policies.

Because in our small city-state, land is a very scarce resource, and we have to somehow find space for all of a country’s needs, within the limits of our city. So we have to be very creative and disciplined in our planning. We have to balance many considerations – economic, social, environmental, and more, as well as the varying needs and aspirations of different groups of Singaporeans. And we need to steward our limited land resources sustainably and responsibly so that Singapore can flourish not just today, but for many generations to come. This is a big challenge, which will only get harder as our city becomes more densely built up, and our aspirations grow and become more diverse. But it is also full of exciting possibilities, and opportunities to innovate.

Today, I’d like to illustrate how we address some of these challenges, and balance the many considerations we need to think about, in the context of our public housing policies, focusing, in particular, on the sustainability of a new model for public housing in prime and desirable parts of our city as we grow and develop.

Public Housing as Social Policy

For us, public housing provides homes for majority of our people. It is the foundation on which we build so much of our lives. It is part of our national identity, and it helps us to meet many other needs and objectives. At its core, home ownership helps to give Singaporeans a sense of rootedness and a firm stake in our country. It’s also an asset that Singaporeans can tap on, if they need to supplement their retirement savings, for instance. Public housing policy represents a uniquely Singaporean blend of market principles and Government intervention for important social objectives. It is heavily subsidised, but also reflects some market principles in pricing. Larger flats, and those in mature estates or more central and desirable locations will cost more, despite subsides.

We have a resale market, which is also highly unusual in the world of public housing. Many homeowners potentially enjoy an upside when they sell and upgrade, especially when the economy is doing well. This is one way of sharing the fruits of our progress. This provides a strong foundation. But with public support, we can refine the policy levers of public housing to better achieve social inclusion and fairness, and rationing of limited resources all around, as well as environmental sustainability, especially as new housing types emerge to meet the needs of today and tomorrow.

For instance, public housing supports family formation, parenthood aspirations, and care across generations. It seeks to support our health and wellness – for instance, we’ve just launched the first Health District in Queenstown. There’s public housing for active ageing – like our new Community Care Apartments, and integrated developments like Kampung Admiralty and a new project at Yew Tee, which we have just announced. There’s public housing plus social support, to help tackle inequalities – the Community Link programme, or ComLink, supports families with children in public rental housing, and HDB also has a dedicated Home ownership Support Team. There’s public housing plus sustainability – through the “Green Towns Programme”, we aim to reduce energy use by 15%, by the end of this decade. And importantly, there’s public housing for social inclusion because public housing is ultimately a social policy – building diverse and inclusive communities, where people from different walks of life can live together, interact, and foster strong social ties.

Prime Location Public Housing

That’s where our new prime location public housing model, or the PLH model for short, comes in. We want to build public housing in prime locations like the city centre, so that these areas do not become exclusive neighbourhoods that only the well-to-do can enjoy. Left to the free market, that’s what’s likely to happen, and we’ve seen this in many cities around the world. It will take a proactive strategy and a commitment of resources, to counteract the powerful social and economic forces, that tend to drive cities toward stratification and fragmentation.

That’s why we rolled out the PLH model. By now, you might be familiar with its key features, so let me just do a brief recap. We will provide additional subsidies to keep these PLH flats affordable at initial sale. To try to address the excessive windfall gains that this might lead to, we will recover the additional subsidies, as a percentage of the resale price, when the home is later sold on the open market. To keep flats affordable and accessible upon resale, we will require resale buyers to meet prevailing eligibility conditions for BTO flats. And we will prioritise these flats for those who are genuinely buying a home, by increasing the minimum occupation period (MOP) from the current 5 to 10 years, and by disallowing the renting out of the whole flat at any point in time. We will also incorporate public rental flats into these prime locations, where possible.

Since we’ve announced the model two days ago, we’ve heard diverse feedback from all quarters. Many were supportive. Others raised concerns. We’d received similar feedback through our earlier public consultations. We had more than 7,500 people come to us with passionate and considered views. And we understand why people want to participate in this discussion. After all, public housing policies touch the lives of many Singaporeans. So it is natural that so many are concerned about the impact of such policies on them, on others and future generations. Let me take this opportunity to thank everyone for your views, and to offer my thoughts on some of the issues that have been raised in the almost year-long consultation and over the last two days.

Broad model

For example, some people have asked, why build public housing on such prime land? Why not leave it to market forces, and let the private sector develop the land for private housing? Why not allocate such prime land to actors who can best maximise it? Indeed, we could have done so, and it would leave the Government in a better fiscal position. But we believe that our housing estates ought to reflect the diversity of our society. This is our core conviction. We are investing our land and limited resources, for a more inclusive and cohesive society. Others have asked – why a new housing model? Why not just build flats and apply the same policies as you do all over the island? They will of course be sold at higher prices. Why do we need to put additional subsidies to benefit this group of fortunate buyers? Shouldn’t flat owners pay for what they get, especially if there’s the potential for a big upside?

We understand these concerns. They are fundamentally about the sense of fairness. But without additional subsidies, these flats would only be accessible to a narrow group of wealthy buyers. We are therefore providing more subsidies to keep the PLH estates more affordable, to a wider range of households. But we will recover the extent of the extra subsidies when the PLH flat is sold, to be fair to other non-PLH flat owners.

Some have suggested, if we’re really concerned about resale prices and windfall gains, why not take these PLH flats off the open market altogether? Let these flats be returned to HDB only, so that HDB can control prices directly. We can understand these sentiments too. And we did study this possibility very carefully. But ultimately, we found that it would be very challenging to set the right price to buy back these flats. There was no strong consensus on this. In fact, there was fierce debate and disagreement even amongst those who had suggested this approach. Do we peg the buyback price to resale prices in other locations, or GDP growth, or some other metric? Set it too low and it would not be fair to the flat owners. Set it too high and it would be unfair to other non-PLH flat owners, who do not enjoy a similar Government-guaranteed backstop. So market pricing is still useful as an allocation mechanism. It is not easy for the Government to get the pricing right. But we will seek to temper the excesses of the market through the subsidy recovery, as well as the tightened conditions for resale buyers, which will help to moderate demand.

Subsidy recovery

On the subsidy recovery framework, some asked if it would help to moderate resale prices, or if it would in fact bump prices up, as sellers price in the amount they have to return to HDB. This subsidy recovery is intended to address the windfall gains that one would get from the sale of highly subsidised flats in these prime locations, and to recover some or all of the additional subsidies. But, some have asked whether this will cause unintended consequences. It’s indeed hard to say how exactly prices will evolve as it depends on so many factors and considerations – market considerations, buyers’ sentiments and so on. But the measures we’ve put in place, such as the eligibility conditions for resale buyers, and the longer MOP, should help to temper demand – especially more speculative demand – and thus dampen price increases.

Resale restrictions

One of the deepest points of contention has been about the additional eligibility conditions for resale buyers of PLH flats. We encountered this, too, in our public engagements. While many could accept restrictions on sale at initial launch, as well as some restrictions on resale buyers in light of our social goals, others asked whether these restrictions are fair, given that resale PLH flats are sold on the market and not at a subsidised price. They questioned: why are we excluding some groups of people from the PLH flats, even upon resale, if our aim is to keep these prime locations inclusive? These are concerns that we grappled with too.

Let me put it this way: it is not our intention to exclude anyone from these prime locations. If land and resources were not a constraint, one would seek to provide for all. But we also recognise that without some intervention, resale prices there would likely rise out of reach for many Singaporeans, thus excluding them, in practice. So we do need some calibrated restrictions, to keep PLH flats accessible to a wider group, bearing in mind that there remain other housing options in these prime central areas too, that can help cater to those who don’t meet the current eligibility conditions. We settled on the BTO eligibility criteria, as an objective set of means-tested conditions that Singaporeans are already familiar with. They cover a broad range of Singaporean households. For example, the prevailing income ceiling of $14,000 covers more than 8 in 10 resident households. There will still be many better-off households who don’t qualify. But they should be better placed to afford other housing options in these prime central areas, like existing resale HDB flats, or private housing.

Others point out that an income ceiling doesn’t keep out those who have low income but high wealth, such as children of well-to-do parents, or wealthy retirees. We considered this too. But it is not straightforward to comprehensively means-test one’s wealth or their family’s wealth. Our BTO criteria go some way toward testing for wealth or serve as some form of proxy for wealth. For instance, we will disallow private property owners from buying a PLH flat until 30 months after they have sold off their private property. But it is hard to do much more in a meaningful way – though we’re always open to suggestions and will continue to study this issue.

Some have also asked why singles aren’t allowed to buy PLH flats, even on the resale market. This flows from our BTO criteria, which currently allow singles to buy new 2-room flats in the non-mature estates. We understand their concerns. Some Singaporeans remain single for a variety of reasons, including obligation to family and parents, or a matter of choice, or a matter of life course. But many still want or need their own living space. They may wonder if we care about their housing needs. To these Singaporeans, let me assure you: we do. We recognise your needs, your aspirations, and your sacrifices. That’s why we’ve in fact been expanding housing options and grants for singles over the years. And we’re not taking a step backward in this regard.

The PLH model is brand new, untested in the market, and we won’t be launching many PLH flats initially. So we’re prioritising them, for now, for larger households who may need more space for more people in their families. In the meantime, singles can continue to buy existing resale flats, including many in prime central areas. Let us launch this new policy, assess the impact of the current suite of measures in achieving our objectives, and gain experience operating the model, as we make adjustments and improvements along the way, bearing in mind the evolving demographics of Singapore and changing aspirations of Singaporeans.

MOP

Turning to the MOP, some Singaporeans were concerned that 10 years is too long and not practical, because family and life circumstances can and do change. Some of them spoke from personal experience. Perhaps they had a child and decided to move after a few years, to enrol their child in a preferred primary school. Or perhaps they went through a painful break-up during their MOP, and had to sell their flat early. We recognise these concerns. Yet on the other hand, some Singaporeans still thought that the 10-year MOP was too short. Some of them had bought their own homes for the long term, and felt that these PLH flats should go to people who are doing the same.

On balance, we thought that a longer MOP was warranted – to emphasise owner-occupation and reduce speculative demand, which would be greater for flats in such good locations. And our data suggested that HDB owners typically live in their flats for more than 10 years before selling them. But there is no magic number that works for all families in all situations. So for those who face extenuating circumstances during their MOP, we will certainly consider their appeals, on a case-by-case basis in deciding whether to take their flats back or to allow them to sale in the resale market. In fact, we already do this today, for regular HDB flats with a five-year MOP.

Whole flat rental

Next, some have asked why we’re not allowing PLH flat owners to rent out their whole flats, even after their MOP is over. Doesn’t this diminish their rights as property owners? We understand where they are coming from. Yet at the same time, we often receive feedback from Singaporeans who are looking for a flat as a permanent home. They say it is difficult to get a flat, and they feel frustrated when they see HDB flats being rented out, because they feel that subsidised housing should be homes, not a source of income.  And this is not just for PLH flats, but also other HDB flats. So we strike a balance. For PLH flats in particular, which would likely fetch higher rents, we thought we should prioritise them even more for those who are buying a long-term home. This would also reduce speculative demand and moderate resale prices. We may not be able to screen out speculative demand completely, but a 10-year MOP, and disallowing whole flat rental, will go a long way.

In fact, we have also heard suggestions that we should disallow renting out of rooms. Because today, some flat owners say that they’re renting out a room, when in fact they’re renting out the whole flat, which is not allowed during their MOP. They just lock up one room that they claim to be theirs, but they don’t really stay in the flat themselves. We are aware of such cases of abuse, and we don’t hesitate to take firm action against them, when we find out. In some egregious cases, we have even taken back the flats from the owners. So we’ll continue to see how best we can enforce these regulations, especially for PLH flats where the temptation to game the system may be higher.

Rental options

Speaking of rental, some suggested that prime location flats should be rented out only, and not sold. After all, HDB does have experience renting out flats to lower-income households and to young couples who are waiting for their homes under the Parenthood Provisional Housing Scheme (PPHS). Some say renting out PLH flats could be young people who want to experience city centre living for some time, but who are not yet looking for a permanent home or ready to settle down. But there are many others who are seeking a long-term home, who would not be served by a purely rental model. Rent in prime locations would also be expensive, and we would likely still need to provide significant subsidies to keep it affordable, especially since CPF savings can’t be used for rental payments. Not to mention that residents in a purely rental estate might be more transient, making it hard to build strong, rooted communities. Finally, some have questioned why we’re including public rental flats in prime locations too. Won’t this require huge subsidies? Can’t you build them elsewhere? Will people get along? And can public rental households even afford living in prime central areas?

These are not invalid questions. But ultimately, this goes back to our core commitment: to ensure that our public housing estates are inclusive and diverse communities. That’s why we’ve integrated rental and owned flats in the same blocks and estates in other parts of Singapore too. So this is not new. And let’s not forget that many lower-income Singaporeans work in prime central areas, like in F&B, cleaning and security. They would benefit from living closer to their workplace. But indeed, we do have to help them manage their living costs. Besides subsidised rents, we should ensure there are affordable food options, shops, pre-schools and recreational amenities for them, in the estate or vicinity. We have to take a holistic planning approach, to uplift the more vulnerable groups in our society and make them feel more welcome in these estates.

On that note, let me conclude by reiterating that at its heart, the PLH model is about keeping our housing estates inclusive and accessible, so that we can build strong, united, and enduring communities. To do this, we need to consider many factors, and no one policy can address every concern. But we have sought to strike a good balance, keeping our eyes firmly on our social objectives. And we will continue to review the model over time. Like all our housing policies, the PLH model is not cast in stone. In the same way, we will keep improving our broader city planning strategies, to secure a sustainable long-term future for Singapore. In fact, we’re in the midst of our Long-Term Plan Review (LTPR), where we’ll work with Singaporeans to chart out what our city could look like, 50 years from now and beyond for our children and grandchildren. Do join us and lend us your insights and expertise – find out more on the LTPR website. I wish all of you a productive Forum. Thank you.