Squatter areas (also known as shanty towns) appeared in Lima and Hong Kong after the arrival of large numbers of migrants. In Peru, these migrants were forced to live in shanty towns because of the hostility of the urban dwellers who denied them opportunities in the formal economy to find housing, education, and jobs and to set up businesses. In Hong Kong a set of misguided policies to impose rent control on pre-war housing units, coupled with hostility to easing development, literally pushed some migrants seeking shelter into squatter areas.
In both Lima and Hong Kong, squatter areas mushroomed in the fringe areas around the city. In Lima, the shanty towns grew so large that they eventually housed more than half the city’s population. The informal economy became as large as the formal economy. The Peruvian authorities never developed a public housing program to resettle the informals and provide them with alternative shelter. After a protracted period of political struggle the informal settlements became tolerated by the state. Eventually the squatters were granted legal land titles and reincorporated back into the formal economy after Hernando de Soto’s illuminating and influential work highlighted the sheer folly of denying the squatters their rights to the property and settlements they had built up.
Post-War Explosion of Squatters
This decision made compelling economic sense. The Peruvian squatters had built up and made good economic use of the state land they had invaded, without permission, over several decades. Some of these settlers had purchased agricultural land without permission and built them into settlements and their ownership rights were also recognized. Granting the squatters the right to possess what they had occupied and built up was ultimately advantageous for society as a whole.
In Hong Kong, squatters have been handled very differently. The growth in squatter areas meant land available for development became very scarce, which was increasingly evident as businessmen could not find land to build industrial factories. Jobs and economic opportunities were being threatened in a city with a rapidly rising population. The situation was worsened by rent control legislation that made it extremely difficult to redevelop old private tenement blocks in the urban areas. In a bid to clear squatter areas for development, the resettlement program was adopted.
Resettlement created powerful incentives for migrants living in cramped old private tenement blocks to become squatters and be resettled in larger public housing units. The number of squatters exploded. The resettlement program eventually evolved into a massive public housing program that currently accommodates half the population of Hong Kong.
Today two competing criteria are employed to determine who is admitted into the program. The original criterion was squatter households affected by government decisions to clear squatter-occupied land for development. They did not have to be means tested, which in effect meant the resettlement program was a carrot to soften the political resistance of those who had to be cleared from the land. Means testing was introduced as an additional criterion later on to assist and pacify poor households that did not benefit from land clearance. This assistance to households without means made the resettlement program more politically and morally acceptable.
Squatters who accepted the subsidized housing essentially surrendered their uncertain rights to the dwellings they occupied on squatter lands. This is a key difference with the Peruvian squatters, who never surrendered their uncertain rights and who were eventually triumphant in getting government to recognize that they possessed legal rights over their dwellings and the land they occupied. But since the Tsoi Yuen Village incident in Hong Kong, non-indigenous villagers here have also sought political recognition for their uncertain rights as rural squatters.
Hong Kong squatters are usually offered a tenancy in a public rental unit. A very few have been offered a Homeownership Scheme (HOS) unit. However, since HOS units cannot be disposed of on the free market without first repaying to government the unpaid portion of the land premium, their real value is substantially reduced. Given these restrictions, it is not surprising that the Tsoi Yuen villagers said the terms of offer for resettlement, as presented to them on 16 January 2011 by the Under Secretary for Transport and Housing, were unacceptable.
Singapore’s Private Property Populism
The terms offered by Singapore’s Housing Development Board (HDB) have been substantially more generous. Households get full ownership of their units at an affordable price. Occupant owners are free to sell the unit on the open market after five years and to keep any capital gains for themselves. Why have Hong Kong and Singapore taken such different approaches to public housing?
The post-war population in Singapore expanded rapidly, although it did not experience a massive influx of migrants like Hong Kong. Between 1949 and 1959 Singapore’s population grew at an average rate of 5% a year. However, as in Hong Kong, the British colonial government, which returned to power in Singapore at the end of World War II, decided to impose rent control in 1947. Redevelopment of the old tenement apartments became extremely difficult and public discontent mounted.
One of Lee Kuan Yew’s major electioneering points during the 1959 campaign that swept him into power was the ineffectiveness of the Singapore Improvement Trust whose record in building homes was “insufficient even to cater for the annual population growth, let alone alleviate the slum problem”. He promptly set up the HDB in 1959 to provide incontrovertible proof of the capacity of the People’s Action Party (PAP) to fulfill its pledges to the people.
Most would agree that although the Singapore government’s national economic development accomplishments were impressive, nevertheless its greatest showpiece achievement was its low-cost housing scheme. It changed Singapore’s physical landscape and gave Lee his first opportunity to demonstrate that he was doing things for Singaporeans. The government built 80% of the homes in the city-state. Singapore literally became “the public housing laboratory of the world” even though Hong Kong’s housing resettlement program had been initiated five years earlier.
At the end of the first Five-Year Plan in 1965 the HDB had built 54,000 units, well over twice the number of units completed by its predecessor, the Singapore Investment Trust, in the entire period of 1927 to 1959. The breakneck pace of HDB housing development improved the housing shortage problem, but also resulted in a huge scarcity of land available for development. Swamps were filled and land was reclaimed from the sea. Most of the fishing villages that were cleared were Malay and the cry arose that Chinese Singapore was persecuting its Malay minority and disrupting the traditional Malay kampong or village way of life.
To secure more land at cheap prices for the HDB projects, Singapore passed the Land Acquisition Act of 1966, which conferred powers on the state to nationalize land for any public purpose. The rate of compensation was set by statute and independent of both market value and the landowner’s purchase price. This exercise wiped out land rent gains for affected landowners, some of whom suffered actual losses having purchased their land at prices above the statutory determined value. Some landowners even had to continue with mortgage repayments for land which had already been acquired by the government.
Fires of Convenience
The result of this was that the proportion of land under state ownership increased from 44% in 1960 to 76% by 1985. T J S George described another process by which land in the slum areas became available for redevelopment:
“Sometimes nature felt obliged to help. In 1968 a major fire broke out in a Havelock Road shanty town which had refused to liquidate itself despite constant government warnings about disease, theft and fire. It was Singapore’s worse fire in seven years. It was suddenly discovered that only five engines were available to fight it. Water pressure in the neighborhood turned out to be inexplicably low. The hydrants were insufficient, the hose damaged or leaky. Even winds proved treacherously changeable. To cap it all the firemen did what a press report at the time described as ‘rather odd target selection’. In no time the fire completed its course and cleared an area occupied by some 200 huts. Soon another high rise building covered it.”
“The fire that had raged seven years earlier was strikingly similar. It too had completely razed a shanty town and immediately made way for another Housing Board estate. There were other smaller fires in other recalcitrant slums, each followed by housing development. Singaporeans began happily talking about ‘fires of convenience’.”
This is probably one of the reasons why the government of Lee Kuan Yew has not been able to shake off its populist authoritarian image despite being one of the early democratically elected governments in Asia (and one of the few) and having a stellar record of being free of corruption.
Housing development was the cornerstone of Singapore’s national development strategy. It provided visual evidence of progress for all to see. It gave Lee’s populist authoritarian government concrete confirmation of its concern for the ordinary people. It created a building boom that provided sustained stimulation for economic progress. Most importantly it bought political support for the People’s Action Party. It dispelled and dispersed the leftist political forces that lurked in the slums, the breeding grounds of political dissatisfaction.
The government’s single most significant decision was to pass onto the HDB occupant the entire land rent it captured. All HDB properties can be either rented or owned; initial renters may subsequently purchase their unit. Both rents and prices are set at heavily subsidized rates. After five years from the date of effective purchase, owned units can be sold on the open market. There is no requirement to repay the subsidized premium. In addition, the owner of an HDB unit can also sublet it in whole or in part on the open market. These prudent measures have created a private propertied citizenry in Singapore that has provided unwavering stable support for the political leadership over the decades. They have also created a free market in HDB housing units that strengthens the foundations of a free private market economy.
Hong Kong Public Housing Lacks Free Market
Singapore in effect has pursued a sort of selective discriminatory urban land reform. It has broken up some of the traditional old land ownership order to achieve national development objectives. Certain parcels of private land have been nationalized and redistributed to some 80% of ordinary citizens through the HDB program – although the government’s reputation in fostering economic equity and social fairness is far from untarnished given the discriminatory nature of the nationalization of land.
The Singapore and Hong Kong approaches to public housing therefore have been quite different. Lee Kuan Yew’s government was committed to nation building and giving the people of Singapore a stake in their future. It gained legitimacy through its struggles against the British colonial government and other political rivals. It was also in a hurry to pursue national development. Its draconian policies to reclaim land from owners had to be justified on higher moral grounds and with more exalted social goals.
On 28 June 1959 Lee told a gathering of workers that his mandate was clear: to bring about by peaceful and constitutional means an independent, democratic, non-communist, socialist Malaya. He said, “It is necessary to state categorically that we are democratic socialists, and that we subscribe without reservations to the theory and practice of democratic socialism on which the PAP is based.” (see Josey pp. 97) The HDB program now houses 80% of the population of Singapore, of which 90% are homeowners. It has, in the view of Premier Lee Hsien Loong, given to the vast majority of Singaporeans an asset that allows them to benefit from a more prosperous Singapore. Everyone has an economic stake in the future of their nation.
The HDB program has also ensured that land, a scarce and valuable asset in Singapore, is held privately and allocated through the market. As a result, it is used efficiently to the benefit of everyone and the economy as a whole.
With almost all land held privately, everyone has a stake in Singapore. For example, the city-state’s environment is far better protected for than that in Hong Kong, even though almost all land in Singapore is occupied while in Hong Kong vast tracts of land are held publicly for conservation purposes and not occupied. Privately-held land gives everyone a stake in their environmental future and provides powerful individual incentives to safeguard against environmental degradation.
It is truly ironical that a government proclaiming to be socialist made the decision to let HDB occupants either rent or purchase their flats at a deep discount and to possess the right to sell these flats on the open market without having to pay government any land premium. It makes a mockery of Hong Kong’s famed reputation as a bastion of free market capitalism. Singapore adopted a policy to give all citizens private property at a price they can afford. Hong Kong chose to keep its citizens enserfed to their public housing units as tenants or pseudo homeowners without full possession of the units they occupy.
In the end Singapore has accomplished the same thing that Peru has in Lima, which is to make almost all of its citizens property owners. There is one difference. In Lima the dwellings and settlements were built by the occupants. In Singapore the government built them. Visually the two cities look very different. There is far more homogeneity in Singapore.
Lessons for Hong Kong
In dealing with the problem of rising urban housing demand due to population increases, Lima, Singapore and Hong Kong have demonstrated critical differences in their responses. All three cities had shanty towns or squatter areas. Lima did not embark on building a massive public housing program to replace its shanty towns in the manner that Singapore and Hong Kong did. The shanty towns in Lima were an important part of the informal economy and also the breeding grounds of supporters for the terrorist movement.
The Peruvian government adopted the recommendations of Hernando de Soto to give legal land titles to the occupants in the shanty towns. Peru allowed the occupants to retain the entire value of the land premium for free and with full unfettered, untaxed transfer rights. In so doing, it strengthened the foundations for a private market economy and a stable political system. Hernando de Soto sub-titled the first edition of his book The Silent Revolution in the Third World, but in the second edition he sub-titled it The Economic Answer to Terrorism.
Both Hong Kong and Singapore decided to get rid of their shanty towns by resettling the occupants into high rise, publicly built housing blocks. Singapore decided to allow the occupants to keep the value of the land premium for free. They became bona fide full owners of their housing units. Most Singapore citizens became private property owners through the goodwill of the government. They naturally became staunch supporters of the government and supported policies to protect the value of their private property.
Hong Kong rid itself of shanty towns gradually compared with Singapore’s breakneck pace, but failed to share the value of the land premium with the occupants in the high rise public housing blocks. The occupants became tenants or pseudo homeowners who could not rent out their housing units or dispose of them without many restrictions. They have remained enserfed to their housing units and to the Housing Authority and their many and growing complaints form a pool of cumulative demands that have turned them into critics of the government. Large swathes of land are locked into an inflexible land use policy which does not allow the occupant to do anything but use it as shelter. Public housing without ultimate private ownership has worsened the division between the haves and the have-nots.
Despite Singapore’s self proclaimed commitment to democratic socialism, it laid a solid foundation for a people’s private capitalist economy to take root. Hong Kong’s private capitalist economy foundation is in this respect much less firm at the grassroots level. And this is the cause of Hong Kong’s many woes in recent times.
Squatter clearance everywhere is a brutal political process that generates considerable resentment. Hong Kong has dealt with it by providing resettlement in high rise public housing blocks for affected households.
If Hong Kong’s Housing Authority (HA) did not require exorbitant payments for the land premium on HOS units, then the offer of an ownership unit to non-indigenous villagers in Tsoi Yuen Village a year ago and in the North East New Territories today would be much more attractive. The HA unfortunately inherited these poorly conceived housing policy measures from the government in the 1960s. These policy measures have become a hindrance to redevelopment in the New Territories.
Public consultation on the North East New Territories development area was initiated long ago yet the recent complaints from non-indigenous villagers suggests that the only key stakeholders consulted were the indigenous villagers. The non-indigenous villagers only became a political force to be reckoned with last year when the decision over the high-speed railway project had to be made.
Even so, it has taken a very long time to consult indigenous villagers whose rights are much better recognized than those of non-indigenous villagers. There is certainly room to find a way to lower the transaction cost of developing the New Territories. I believe this will depend on greater clarity and recognition of the rights of all inhabitants, to give them better security and stability and where necessary to offer more attractive compensation in exchange.
Hernando de Soto, The Other Path: The Economic Answer to Terrorism, Basic Books, New York, 1989
Alex Josey, Lee Kuan Yew: The Crucial Years, Times Book International, 1968
T J S George, Lee Kuan Yew’s Singapore, Andre Deutsch, 1973