Housing supply: Maintaining a fine balance

Recently, I received an appeal from a young couple who had applied for the first waterfront BTO project at Punggol Waterway Terraces. Seeing the high application rates, they were worried that the Housing and Development Board (HDB) was not building enough new flats and that prices would shoot up beyond their reach.

The couple commented: “We read in the papers that the number of new flats completed each year by the HDB has been lower than the number of marriages in recent years. This means that the HDB is not building enough flats for the new households.”

This couple’s concern may be shared by many Singaporeans. Let me explain why things are not so straightforward, and how the HDB plans its housing supply to fulfil both short- and long-term needs of the people.


Meeting first-timer needs. The Government’s commitment remains clear and constant – to provide affordable housing to the masses. Today, eight in 10 Singaporeans stay in HDB flats.

To keep our commitment to future generations, the HDB must focus on helping young couples buy their first flats.

Supporting resale flat purchases. But this does not mean that we need to build a new flat for every new household. Why?

Because some households may buy resale flats instead of new flats for various reasons, such as location and flat type. The HDB supports them by providing a CPF grant of $30,000 to $40,000 and a loan subsidy. Those with lower income can also qualify for an additional grant of up to $40,000. Among first-timers, 30 to 55 per cent of them took up resale rather than new flats each year over the past decade.

Supplying new flats. After accounting for what is met through the resale market, the HDB then builds new flats to meet the housing needs, with more flats set aside for first-timers. In planning the housing supply, the HDB takes a comprehensive approach. It examines not just the marriage rate, but also factors like the inflow of permanent residents and foreigners, flats released into the resale market through deaths or emigration, and upgrading or downgrading by existing home owners.

Over the past 10 years, the HDB built and sold more than 100,000 new flats. This was equivalent to adding three new Toa Payoh towns. The resale market was even more active in the same period, supplying over 300,000 or three times more flats. Together, new and resale flats have met the long-term housing needs of Singaporeans.


Fluctuating short-term demand. However, things are never so simple. While supply over the medium term is roughly aligned with projections, housing demand in the short term can be much more volatile. Home buyers will adjust their purchases, depending on the economic outlook and market sentiments. When prices are low, buyers hold back, hoping it will go down further. Conversely, when prices are high, more buyers may come forward, worried that they may miss the boat.

So, while marriages among Singaporeans eligible for public housing stayed largely unchanged over the past decade at about 16,000 per year, demand for subsidised housing from first timers fluctuated between 12,000 and 19,000 per year over the last decade. Total transactions in the HDB market varied even more sharply during this period, ranging from about 37,000 to 58,000 transactions annually.

Avoiding an over-supply. If the HDB were to fly on auto-pilot and supply a fixed number of flats every year, regardless of market conditions, there would be the risk of an over-supply in some years. For example, between 2002 and 2006, resale flat prices had remained largely flat.

If the HDB had pressed on with housing supply based on long term projections, then flat prices for the over-800,000 existing home owners could have been depressed further.


Managing unprecedented changes. The market changes over the past year or so have been especially challenging to anticipate. As late as May last year, the International Monetary Fund was predicting a “long, severe recession” for Asia.

Surprisingly, the number of new immigrants to Singapore actually increased during the downturn, as economic activities recovered quickly.

Equally important was the impact of sentiment. Property prices tapered off in the first half of last year, even though there were many foreigners here. But prices picked up sharply not only in Singapore but also in the region, when the outlook improved dramatically in the second half of last year amid low interest rates globally.

Responding swiftly. In response to the sharp recovery, the HDB rapidly increased the offer of new flats from the earlier plan of 6,000 to 9,000 in the second half of last year.

For 2010, the HDB recently raised its planned output by more than 30 per cent, from 12,000 to more than 16,000 new flats. It is also prepared to launch up to 22,000 next year. At this rate, in just two years, we will offer more flats than what is currently available in Toa Payoh.


Determining the right housing supply for the short term will always be a difficult call, and we have to strike a delicate balance. Economic conditions and sentiments can change much faster than any building plan.

So, while we plan our housing supply to broadly meet longer term needs, we also build in some buffer to deal with short-term fluctuations.

Some might suggest that the HDB could go further and build a much larger buffer or build ahead of demand to deal with market fluctuations.

But this would then create the problems of high holding costs and a potential supply-demand mismatch, which I will deal with in my next article.

Ultimately, whatever the system of flat application, trade-offs have to be made between supplying too little to meet home buyers’ needs and supplying too much to the detriment of existing home owners or taxpayers. These are trade-offs that we must balance carefully in the overall interests of all Singaporeans.

By Mah Bow Tan, Minister for National Development.

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