Economic development and the distribution of land rents in Singapore: a Georgist implementation

American Journal of Economics and Sociology, The,  Oct, 1996  by Sock-Yong Phang

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From 1992, the Housing and Development Board began a program for the sale of its shops to tenants at discounted prices. Prior to this, a speculative market for tenancy rights to HDB shops had already developed. Some shopkeepers who had purchased leases to their shops were able to sell these immediately for overnight profits of up to half a million dollars.(5) The large profits were a result of discounted prices being based on conservative valuations as well as a real estate boom during the period in question. In the words of the Prime Minister himself (National Day Rally speech, 1994) - "it was as if they had struck a lottery" - indeed a curiously arbitrary and very selective way of redistributing land rents!

From 1995, middle income housing estates built by the public sector are being privatized. Middle income estates were built by the Housing and Urban Development Corporation (HUDC) to cater to young professionals whose incomes were too high for HDB housing, but too low for them to afford housing built by private developers. Between 1976 and 1989, some ten thousand units of such middle income housing have been built at 18 localities. In May 1995, the government began a program for the privatization of HUDC estates. Upon conversion, HUDC flat owners will own and manage their respective strata or individual units, as well as common property like car parks and open landscaped areas as tenants in common. They will also be freed from the regulations affecting HDB flat owners and enjoy the status and privileges of private property owners. The most significant changes are the eligibility of foreigners to purchase HUDC fiats and the lifting of the owner-occupancy criteria. Owners will pay conversion costs estimated at S$25,000 per flat which is expected to be lower than the appreciation in price resulting from the conversion.

VII

Conclusion

The Singapore government had, in effect, implemented land reform in an urban setting in the initial two decades of nation building. However, the manner in which land rents were acquired and then redistributed through leases (mostly 99 year ones) was effective in only changing the wealth distribution during the initial period. What is lacking is both a George-prescribed mechanism as well as the political will for the continuous capture of land rents. Singapore has not considered site value taxation and is not in favor of a capital gains tax on real estate in view of its perceived effects on the real estate market as well as on its financial sector development.

A related issue is that of the country's high savings rate which was 51 percent of GNP in 1995. Mandatory savings, government budget surpluses as well as the surpluses of government statutory boards and companies contribute significantly to gross national savings. In view of the heavy reliance on non-tax revenue, a good Georgist would argue for the further decrease in tax rates on incomes. However, tax rates have been reduced gradually during the past decade and are by no means onerous. The constraint perhaps, is not so much domestic, but international in that the government does not desire the country to be labeled a tax haven with its related adverse connotations. Many forms of tax relief, concessions and rebates exist for both corporations and individuals alike. Recent tax rebates and policies for the redistribution of the reserves reflect the philosophy of the government to do so in a manner which will minimize any possible effects on incentives to work or invest. This refunding of government revenues as grants to households is in keeping with George's view that land rents belong to the entire community.