As the chief supplier of homes, the Housing Board should set the price of public housing, rather than take its cue from the resale market.
No longer will HDB let "the tail wag the dog" as it did for decades when it used a market-based approach to price its Build- To-Order (BTO) flats, said National Development Minister Khaw Boon Wan.
This resulted in soaring new flat prices as the resale market spiked 80 per cent over the last six years.
Mr Khaw put a stop to this by "delinking" BTO prices from the resale market after he took over the housing portfolio in 2011.
"(Being) led by the private sector (is like) a tail wagging the dog. We should be the price-setter, not be the price-follower... The social objective is to ensure home ownership and affordability," he said in an exclusive interview with The Straits Times.
Even before he stepped into this job, he was clear about wanting to make use of HDB's dominant market leadership position to influence prices, he said, adding: "I can't set market prices in the private sector, but I can influence them."
He dismissed worries that delinking new flat prices from the resale market would mean indefinitely increasing the subsidy that taxpayers give to HDB buyers, as the property market moves in cycles and "what goes up must come down".
HDB pays market rate for its land and construction costs. Hence, when it prices flats below a market rate, it incurs a housing deficit - now in the region of about $1 billion a year, including other costs such as upgrading.
In the wide-ranging interview ahead of housing-themed sessions of Our Singapore Conversation, Mr Khaw also spoke of his plans for the future.
In lieu of the old market-based approach, he favours pricing new flats in non-mature estates at about four times the annual median income of its applicants - 30 per cent lower than the current 5.5 times.
This will be implemented "soon (as) it's not something for the next century", he said.
But how it will be instituted without affecting existing flat owners' asset values, as he has promised, is the tricky part - and what he wants Singaporeans to debate in the national conversation.
A four-year salary cycle is reasonable, he said, because that was what flats cost before the bull run of the last six years.
Anything less than that, he noted, might put undue strain on the state.
Mr Khaw lamented that, judging by packed showrooms, it has not "sunk in" for Singaporeans that the era of huge capital gains from property is at an end, with slower economic and thus wage growth in the years ahead.
While property prices have moderated across the board in the past year, "there is still scope to bring (prices) down to minus (growth rates) for some segments", he said.
Despite breaking with the policies of his predecessor, Mr Khaw defended Mr Mah Bow Tan, who helmed the National Development portfolio from 1999 until he left Cabinet in 2011. He noted that in the late 1990s, Mr Mah faced a housing crash, and was heavily criticised for "ghost towns" of empty flats - a stark contrast to the supply crunch of the last few years. "If I came in four years ago," said Mr Khaw, recalling a period of economic uncertainty after the United States mortgage crisis, "my policies may be the same as his".
"When I came in, it was over and a strong recovery was being experienced, so I could do these things. Policies depend on the time. What's important is nimbleness and don't be too stubborn."
Industry players said his new approach would be popular, as the old pricing model seemed to make buyers pay more for the country's success. But they said it had to be in tandem with an adequate supply of new flats.
If there is another supply crunch like that of the last few years, BTO buyers will come into a windfall as resale prices pull away from those for new flats.
HDB has rolled out 70,000 new flats since Mr Khaw took over. "He cannot do this without his ramp-up of supply of new flats," noted PropNex Realty chief executive Mohamad Ismail. "But as long as public housing is in ample supply, this is the right and logical approach."