by Eric Feigenbaum
I noticed around the time I turned 30, conversations at parties and get-togethers inevitably turned toward real estate: how much homes cost in which neighborhood, who people know who had bought a house – and how. There was an innate understanding that financial success was tied into owning a home and in a city like Los Angeles where I live, getting into a house is no easy feat.
The house with a white picket fence has always been the symbol of the American Dream. Especially in the postwar era, Americans prided themselves on an upwardly mobile middle class who could own at least a small piece of their country.
American homeownership peaked in 2004 at 69.4 percent and today hovers at around 65 percent which is still favorable to the entire 1960s when homeownership was around 63 percent.
Imagine a country with 90 percent homeownership. Imagine what it would mean to have a society with that rate of homeownership – with that high a level of security and wealth accumulation.
That’s exactly what Lee Kuan Yew, Singapore’s founding Prime Minister did. Although educated in economics and law at University, Lee Kuan Yew noticed as a child the differences between neighborhoods dominated by homeownership versus those that were mostly rented. Cleanliness, stability and low crime rates were among the benefits of an owned neighborhood.
In 1965 when Singapore declared its independence both from the Malaysian Federation from which it was ejected and from the United Kingdom from which it was being decolonized, Singapore had a roughly 27 percent homeownership rate. Shockingly low.
Why?
Singapore was an open port filled with immigrants. The British needed workers to power the colony they essentially designed as their anchor in Southeast Asia – a colony aimed at holding naval and trade superiority across the Indian and South Pacific Oceans.
Going from 27 to 90 percent homeownership in less than 30 years was – as it sounds – no small feat. Singapore’s founding leaders were systems thinkers and saw the connections how certain actions could synergize to multiple benefits.
First, a fledging nation that had yet to define itself faced several concerns which Prime Minister Lee thought homeownership could at least in part solve.
Singaporeans had “no deep roots in a common historical experience,” Lee posited. “”My primary preoccupation was to give every citizen a stake in the country and its future. I wanted a home-owning society.”
For example, in order to enter military service, a soldier whose family owned their home would be preferable. Otherwise, “he would soon conclude he would be fighting to protect the properties of the wealthy.”
Homeownership could therefore “give all parents whose sons would have to do national service a stake in the Singapore their sons had to defend.”
Equally important to Lee Kuan Yew, “I had seen how voters in capital cities always tended to vote against the government of the day and was determined that our householders should become homeowners, otherwise we would not have political stability.”
Lee Kuan Yew’s Cabinet used a three-prong approach:
- Create affordable housing
- Make financing readily available to people of all walks of life
- Help people gather down-payments
Even prior to independence, post-war reconstruction and growth was pushing inhabitants out of the kampongs – or villages. The island was already on the path to urbanization. Singapore’s autonomous local government created the Housing and Development Board to build 50,000 units of rental flats affordable enough for even the poor. The original Bukit Ho Swee estate provided a template for future large-scale housing construction.
This made it easy for Lee Kuan Yew and his then Minister for National Development, Edmund Barker to in 1965 begin building housing geared for sale. The initial housing estates – condominium developments in American parlance – were fairly basic and later required renovations to maintain their attractiveness and value against later iterations of HDB housing blocks. All the same, for most of their inhabitants, these basic condos were first homes and, in that way, personally and economically transformative for them.
Initially there were fewer buyers than the government had hoped for or expected. Even at affordable prices, most people still needed financing and that ran up against two obstacles: banks wouldn’t lend to low-income buyers and even if they were willing, buyers lacked a downpayment.
In 1968, the Singaporean government tackled both issues at once. It created the Development Bank of Singapore which was tasked in part with providing loans to HDB housing buyers of all income levels. Simultaneously Singapore changed the rules around the Central Provident Fund – Singapore’s answer to Social Security – to allow people to withdraw for purposes of a downpayment on a first and/or second HDB home. This allowed DBS a quick and easy path to issue home loans.
Unlike the Social Security Administration which uses today’s working taxpayer to fund payments to retirees, Singapore’s Central Provident Fund uses the withholdings and tax payments from a citizen for that same citizen’s own benefit. There is no borrowing from Peter to pay Paul. As a result, the government reasoned that while homeownership isn’t a cash retirement payout, owning real estate assets and having no mortgage in later years age contribute meaningfully to a successful, stable retirement.
The results of the DBS-CPF combination speak for themselves. By the 1990s, Singapore’s homeownership has hovered around 90 percent. Moreover, it has allowed for a widespread accumulation of generational wealth.
At the same time, the creation of HDB flats helped with a completely different, but critical goal. Given Singapore’s meagre 290 square miles, the government concluded soon after independence the island lacked the agricultural resources to sustain its population. It then made the unusual move of eradicating all agriculture and committing young Singapore to an urban industrial and post-industrial future. Farmers and villagers were ultimately forced off their land to make way for factories, office buildings and industrial parks. New construction of single-family, landed housing was banned. High rise housing became the vehicle for maximizing Singaporean land use and bolstering a non-agrarian economy.
What can we take from Singapore’s successes in homeownership?
In the end, Singapore is a city-state and when viewed as a city, there are some stark contrasts to its American counterparts. Sixty-three percent of Angelenos are renters as are sixty-nine percent of New Yorkers. Fifty-nine percent of Dallasites, fifty-five percent of Seattleites and fifty percent of Chicagoans also rent. Our urban corridors are vast lands of have-nots.
Or perhaps another way to look at it is that simply by owning a home in urban America – even if it doesn’t necessarily feel like it – you have joined an elite class.
The American experience with housing projects has been so bad the very term “projects” has a pejorative connotation. Unlike countries such as Sweden and France, we have not been successful with delivering high-quality government services and benefits.
Singapore offers us another model – one that works better with American values: socialistic and humanistic goals with capitalistic methods. While the Singaporean government created DBS to help provide capital for both home ownership and funding commercial projects, today DBS is the largest bank by assets in Asia – privately owned and operated with the Singaporean government as a significant, but not majority shareholder.
Beginning in the 1990’s, the Housing and Development Board responsible for building and selling affordable housing began using private architects and developers to create higher quality, more appealing housing for the next generation. Today there are waiting lists to get into new HDB estates – even when they are further away from the city center.
The connection between wealth accumulation and homeownership is undeniable. While some deem the Singaporean government paternalistic, many Singaporeans see it supporting them to establish and maintain personal financial security.
During the 2006 elections, I asked my then-girlfriend in Singapore how she would be voting, assuming that a young, Australian educated Singaporean would choose an opposition party – wanting change in a country that has only ever had one ruling party – the People’s Action Party.
“The PAP, of course!” she said to my surprise. “You can’t trust all of this to anyone else – they might break it. Singapore is a system that works.”
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