Thursday, 17 May 2018

How do 90% of Singaporeans own their own homes? Why is this rate so much higher than in the US?

Peng Peng Zheng, Research Assistant at The University of Texas at Dallas
Answered Tue

There are several issues associated with this phenomenon. It demands a really long essay to fully explain how the two societies evolved this way, but I will just briefly cover the points.

The most down to Earth reason is that our equivalent of the US Social Security-The Central Provident Fund (CPF)-is a personal rather than national saving. Unlike the pension system of any other nation, the fixed amount channeled into your CPF can only be used by you or your family in the future. 

It is more like a personal bank account with some decent interest rate. The trickier part is, a certain portion of this fund can only be spent on housing. The wealthier you are, the more CPF you accumulate, and the more tempting it is to spend that on housing.

Second point relates to why this policy exists in the first place. The real estate value in Singapore increases by a few folds every few decades. Immigrants who are on the permanent resident (green card) status are not allowed to buy new houses, house ownership is therefore actually a guaranteed source of income for Singaporeans in this sense. 

The incoming generations of Singaporeans that are formed by the permanent resident status group are not at a loss either. Those that contributed greatly to economy are therefore less likely to leave because of the flats they have secured here via CPF. You could say it is a way to instill loyalty in highly successful immigrants.

You might ask ‘Can’t the same system work for USA?’ You could, but the bill can hardly be granted in the first place. USA economy is built around the mobility of Americans. I have not met any US family that are not scattered all over USA, young people basically move all over USA to search for jobs. Having a fixed home is extremely inconvenient in this sense. 

The real estate inflation rate is also not enough to justify this effort. More importantly, USA is too large and every state has to agree to make this work. Every single HDB flat in Singapore is government managed and HDB stands for Housing Development Board. We have a ministry dedicated just to managing houses. In USA, every house is private owned, even the grass around the house. A lot of my American friends have no time to mow the lawns every month.

Most large nations work better with the USA housing system rather than Singapore’s. For example China, the younger generations are mostly rent apartments, not that they can afford a new house to begin with.

Lastly, but most importantly, it is also a cultural difference. Singaporeans are mostly Chinese by tradition and there is a certain level of ‘shame’ if a newly wed couple does not obtain a flat. In USA, most people find me insane for thinking that way, so there is that.

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