my take is like this......Right after the Asian financial crisis, the HDB was left with a huge backlog of unsold flats. Then, they building flats and meet demand, which was understandably slow post crisis. If it serves me correctly, they made attempts to flog off the unsold units, like merging two 3-rooms units into jumbo flats in Woodlands to lure buyers. The scaling down also complemented with BTOs which means they only build when there is a demand. To me this is in a way to punish buyers who are deemed to be choosy due to the over supply. Along the way, some smart demographic planner felt the need to boost the population and GDP and like they say the rest is history.
I tend to agree with forummers that surely MBT knows the demand, but his pride got the better of him and the younger generation now feels the wrath of his policies. So, I think it is a question of being vindictive when he was made to look bad for a while after 1997. At least this is the version I have in my mind.