The US Housing Crisis and Lessons from Singapore

by parker lee

Policy Recommendation

Housing affordability represents a significant crisis in most of the world’s major cities. A case study of housing affordability in Singapore highlights a creative approach that addresses affordability by working around Singapore’s unique geographical constraints. Understanding what has worked for Singapore can contribute to the development of constructive housing policies at a time when they are desperately needed.  ​

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"Singapore public housing on a blue sky day HDB" by Jnzl's Photos is licensed under CC BY 2.0.

The Singaporean Government and the Role of Government-Linked Corporations 

To understand Singapore’s housing system, it is necessary to understand how its government is structured and why top-down policy has been so effective in addressing issues such as affordable housing. Singapore is a parliamentary republic, characterized by its highly centralized government. Since its independence in 1965, it has had stable one-party rule from the People’s Action Party (PAP), allowing for long-term policy planning and minimal electoral disruption. This political stability has allowed for strong government initiatives that may not be possible in states with multi-party rule. 

One of the unique ways Singapore benefits from long-term policy planning is through the successful creation and management of its goals through government-linked corporations (GLCs). Regarding structuring, GLCs in the country are either wholly or partially owned by Temasek Holdings, with the Singaporean Minister of Trade and Industry being its sole shareholder. Within Singapore, GLCs play a significant role in sectors such as housing and have historically been viewed as a way to execute economic goals from policymakers. Generally, the government proposes that GLCs operate on equal footing with the private sector without any special privileges. However, it is important to note that the private sector has regularly complained about the GLC structure, noting the creation of unnecessary state-sponsored monopolies even in industries already served by the private sector. Despite the controversy, this unique economic structuring has allowed for the creation and success of the Housing Development Board, which, while not necessarily a GLC, benefits from the culture of state-guided corporate entities.

The Singaporean Solution 

Singapore, one of the world’s densest cities, is seemingly a housing paradox. Despite being a city-state of over six million people, it has about 80 percent of its citizens living in affordable housing. Uniquely, Singapore’s Housing Development Board (HDB) acts as the primary developer and landlord of the housing market. Unlike similar institutions in other nations, the Singapore HDB has a few special privileges. Notably, real estate as a whole is largely owned by the Singaporean government directly. In Singapore, real estate is often leased from the state in 99-year leases. This leasing system ensures that the government is effectively the owner of all housing in the country, giving the HDB unchallenged power in managing housing supply, a rarity in other first-world nations. 

The financial foundation of the HDB relies on the Central Provident Fund (CPF). For an American audience, the closest equivalent would be the Social Security Administration. Like Americans, Singaporean citizens are required to pay a portion of their salaries to the CPF for social security, retirement, and other select purchases. Regarding housing, the CPF finances the construction of housing for the HDB and provides the down payment for Singaporeans to purchase said housing. The HDB uses the funds provided by the CPF to hire contractors to build more housing units. This enables the HDB to carefully account for housing needs without having to focus on profits. For the latter, citizens can use a portion of their CPF to pay for a down payment, in addition to paying monthly payments if needed. This allows the financing loop to be entirely controlled by the HDB, making sure financing is appropriately allocated to incentivize a sustainable housing market. While Singaporeans view the trade as fair, given their affordable housing, such a circumstance may not translate well to nations that are used to more residential autonomy. 
 
America’s Housing Incentive

Relative to Singapore, America’s housing needs are generally addressed from the bottom-up. Instead of a central housing board, the most influential factor in housing is arguably local zoning laws. To decide how a neighborhood will be built, residents of a city decide on building plans through city council votes. Through the city council, residents debate the merits of expensive single-family housing versus cheaper multifamily housing. Despite the affordability crisis, historically, residents have voted against increased multifamily housing. 

This is because homeowners are incentivized to vote against affordability. For American homeowners, a primary residence is regularly the majority of their household wealth. Consequently, homeowners are incentivized to vote against additional housing because increased scarcity would also raise the value of their primary residence, thereby substantially increasing their net worth. The phenomenon of supporting affordable housing, but “Not in My Backyard,” commonly referred to as NIMBYs, has been criticized as the result of such misplaced incentives, being a critical factor in the ballooning of housing prices. 
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Adapting Public Housing for the United States 

While it is unlikely the United States can directly adopt the Singaporean model because of the difference in scale and culture, some aspects of its structure could be borrowed by American policymakers. Notably, Singapore’s structure favors long-term price stability over short-term asset appreciation. In contrast, housing property represents the bulk of American household wealth, encouraging rent seeking for homeowners. Addressing the affordability crisis permits a dramatic overhaul of how the United States relates to housing, from an asset class to essential infrastructure. 

Considering Singapore is a city-state, adopting similar policies would translate best on a local level. A potential option would be to expand the role of already existing housing agencies, such as the Seattle Housing Authority, instead of creating a national housing board. Currently, local housing agencies, like the SHA, are regularly funded through grants instead of consistent tax dollars. This irregular and limited financing means these institutions are limited in their ability to work on large-scale housing solutions. By dramatically increasing their funding through consistent tax revenue, an empowered local housing agency could then work with its respective cities, building high volumes of units in areas where it may be unprofitable for traditional private sector builders. Importantly, these institutions would not eliminate private markets, but instead act as price stabilizers in real estate markets where traditional policy has failed. 

In order to implement these nonconventional housing solutions, policymakers must find a compromise with NIMBYs as well. The reality of the U.S. housing market is that NIMBYs are an incredibly influential group through their financial interest and zoning authority. Implementing a policy that would directly lower their assets is likely to result in aggressive pushback. To compromise, local governments could create a financial incentive by leveraging tax policy. This could be done by scaling down property taxes relative to the proportion of multifamily housing. Such a system could act as a counterweight for NIMBYs, encouraging homeowners to support affordable housing for lower tax rates in communities where financial incentives are lacking. 

Something which is not directly financial, but still an important consideration, would be dealing with the public perception of affordable housing. In the U.S., single-family housing is typically a key benchmark for the American Dream. Multifamily units, on the other hand, have historically been reserved for lower-income brackets, the antithesis of financial success. For instance, a recent survey has found that Americans associate affordable housing with “low-income,” “welfare,” and other negative contexts.  It is ironic, but suggesting the answer to the housing crisis is to give millions of Americans what could be perceived as mediocre housing could be viewed as an insult. To address this, an extensive rebranding campaign will be necessary; otherwise, the project of reviving the housing market might be rejected by those it is intended to house.   
     
Conclusion 

The global housing crisis trend is not an inevitability for large cities, but it does require creative policy-making to solve. In Singapore, successful state oversight has allowed the crisis to be largely averted. On the other hand, the United States has performed poorly in housing, largely due to housing being treated primarily as an asset. The comparison between the two models shows the housing crisis is not a direct outcome of residential density, as Singapore is denser than multiple large American cities, but is instead a result of misplaced financial incentives. From this, policymakers should deeply understand the incentives behind their housing models, instead of trying to implement surface-level fixes. 

Parker Lee is an alumnus of the Foster School of Business and is the former Director of Economics & Business at the Rainier Institute.