The impact of large-scale public housing on intergenerational mobility
Using housing consumption as an indicator, Agarwal, Fan, Qian and Sing (2023) investigate the impact of Singapore’s large-scale public housing on intergenerational mobility.
Wong Wei Chen
30 January 2024
Social reproduction encompasses the idea that socioeconomic classes reproduce themselves over time. Unequal access to resources leads to inequality being perpetuated across generations. As the proverbial saying goes, the rich remain rich, while the poor continue to stay poor.
Unequal access to housing, in particular, has been cited as a significant reason for cyclical poverty and an obstacle to upward social mobility. It is not unusual to see shanty towns coexisting with upscale office districts and luxury enclaves – presenting a stark contrast between the haves and have-nots .
Here in Singapore, however, affordable large-scale public housing has done much to democratise the distribution of wealth, both within and across generations. Being more than just mere shelter, housing in Singapore is a valuable asset class that has enjoyed sustained capital appreciation over many decades, and is therefore highly regarded as a barometer of affluence. So how has such a massive programme impacted social well-being?
In their study “Like Father Like Son? Social Engineering and Intergenerational Mobility in Housing Consumption”, Agarwal, Fan, Qian and Sing (2023) therefore investigate the causal impact of large-scale public housing on intergenerational housing consumption.
Overview of Singapore’s public housing programme
Singapore’s residential housing can be broadly segregated into a private segment and public apartments developed by the Housing Development Board (HDB), the local housing authority. Faced with acute housing shortage during the early years of nationhood, the Singapore government set up the HDB in 1960 with the mission to build large numbers of affordable housing flats to meet the urgent demand for proper homes. Now more than six decades later, under the Build-To-Order (BTO) scheme launched in 2001, HDB flats today house well over 80% of the local population.
In addition to the affordability of new BTO flats, eligible first-time buyers are given housing grants of up to S$80,000 to ensure primary HDB flats are accessible to lower-income households. To promote intergenerational bonding, those purchasing public housing on the secondary market can respectively obtain grants of S$20,000 or S$30,000 when they purchase a resale flat near their parents or live together with them in the same unit.
Scarcity and the allocation of resources
Fundamental to Agarwal et al.’s study is the principle of scarcity. Given finite household budgets, families engage in trade-offs among various types of consumption. With savings arising from highly affordable and widely accessible public housing – which are further supported by generous housing subsidies – financially constrained parents are motivated to channel money into human-capital investment, for example, private tuition, for their offspring. The next generation is hence anticipated to be generally more well-to-do and consequently move up the housing consumption ladder.
On the other hand, richer families which enjoy abundant surplus above subsistence are expected to be relatively indifferent, since they have ample budgets and they either benefit less from or are not eligible for subsidies.
Empirical design
Agarwal et al.’s study is the first to utilise a large sample of ex-post housing transaction data matched with personal demographic information to investigate intergenerational correlations in housing consumption. Private housing transaction records were obtained from the Real Estate Information System (REALIS) published by the government agency Urban Redevelopment Authority (URA), while public housing transaction records are available from the HDB website.
After identifying parent-child pairs from the database, and controlling for co-residence, lifecycle bias and other attenuation effects (e.g. fluctuating incomes or consumption) that might confound the effect of the independent variable (i.e. parental housing consumption), the researchers shortlisted about 150,000 non-co-residing parent-child pairs for analysis.
The researchers adopted a “rank-rank” approach by sorting parents and children on percentile scales for their respective generations. A certain parent, for example, would be assigned a percentile score (or equivalently, a rank on a scale of 0 – 100) depending on his housing consumption relative to his generational peers, and likewise for a child.
This sample was then segregated into families with lower socioeconomic status (comprising the bottom 50th percentile by housing consumption), families with higher status (top 20 percentiles) and the middle segment ranging between the 50 – 80 percentile ranks.
Findings
The data revealed that children of parents in the lowest quintile of housing consumption generally hovered above the 40th percentile among members of their own generation, thus showing substantial intergenerational mobility in housing consumption.
For families below the 50th percentile, statistical analysis yielded a very weak association between the housing consumption of parents and children, returning a very low correlation coefficient of 0.06. This statistic can be interpreted to mean that children of lower income families are highly unlikely to remain in the same housing consumption ranks as their parents.
A child born into a 3-room HDB household, for example, is likely to eventually own a larger flat or even a private residence. Using the BTO scheme as a quasi-natural experiment on the lower-income households, the researchers found that children born in disadvantaged families – but whose parents benefitted from affordable public housing – have an 11.2% higher likelihood of surpassing their parents’ housing status.
The degree of upward mobility, however, begins to attenuate as the data moves up the ranks, when children’s housing consumption becomes more similar to that of their parents. The intergenerational rank correlation for children born to parents within the 50 – 80 percentile housing ranks is more than twice as high as those born to bottom-half parents, reaching 0.17, meaning that children in this middle stratum are more likely to resemble their parents in terms of housing consumption, compared to children in the lower socioeconomic segment.
Children in the middle in fact exhibited a tendency towards downward mobility compared to their parents. Their housing consumption was above the 40th percentile but remained below the 60th percentile, and generally failed to reach the 7th and 8th deciles which some middle-income parents achieved. Generally, middle-income parents, especially those in the upper bound of this demographic segment, had outperformed their offspring.
The correlation for the higher status families (the top 20 percentiles) was estimated to be 0.96. This statistic’s proximity to perfect positive correlation (i.e. r = 1) indicates high intergenerational persistence in housing consumption. A scion of a wealthy family is just as likely to live in prestigious residential property as his or her parents.
Explaining the observations
Parents with financial constraints face a trade-off between housing consumption and investment in children’s human capital. Agarwal et al. hypothesize that a relaxed budget constraint arising from affordable public housing enabled parents to allocate more resources towards investing in their children’s human capital. This in turn promotes intergenerational mobility in housing consumption, as children from such households now have the opportunity to improve their housing status compared to their parents.
In contrast, given little or no budget constraints, wealthy parents enjoy the leeway to simultaneously spend on housing as well as human capital development for their children.
Policy implications
Leveraging Singapore’s extensive public housing program as a quasi-natural experiment, Agarwal et al.’s study showed that children in the lower-housing spectrum benefitted the most, and their findings have policy implications for other countries hoping to emulate Singapore’s public housing policies in promoting intergenerational mobility, especially for the lower-income families.
Agarwal, Sumit is the Low Tuck Kwong Distinguished Professor at the School of Business and Professor in the departments of Economics, Finance and Real Estate at the National University of Singapore.
Fan, Yi is an assistant professor in the Department of Real Estate, NUS Business School.
Wenlan, Qian is Ng Teng Fong Chair Professor in Real Estate and Professor of Finance and Real Estate at the NUS Business School.
Tien Foo, Sing is Provost's Chair Professor at the Department of Real Estate, NUS Business School.