Written by solidarity.tw.
In a 2014 Apple Daily poll of Taipei metro area residents, 83.5% of respondents agreed that housing prices are too high and their children would be unable to afford housing in this market.This was a reasonable conclusion: The Ministry of the Interior’s (MOI) national housing price index estimates housing prices nationwide rose 45% from March 31, 2008, to March 31, 2015, though the nation’s population increased just 2% over that period. The price surge has been greatest in the major metropolitan areas holding a greater and greater proportion of the nation’s population: Median housing price to median annual household income in Taipei rose from 8.9 to 15.7 between 2005 and 2014 as housing prices doubled. Meanwhile, average disposable income rose just 1.6% for Taiwanese from 2008 to 2014 and actually decreased 6.7% for those with university education.
There are many reasons Taiwanese housing has become less affordable, and thus many potential housing policy responses as well, including the following:
1. Raise Real Property Taxes by Streamlining and Updating Appraisals
Housing may be a right, but real estate is definitely an investment instrument, as indicated when cuts in the inheritance and gift tax rates from 50% to 10% in 2009 stimulated property demand, especially on the high end of the market. One big reason housing is such an attractive investment is the low real tax rate. Institute for Physical Planning and Information researcher Hua Chang-i estimates Taiwanese homeowners’ tax burdens are only about one-tenth those found in the United States, and they are becoming ever lighter: housing tax revenues rose just 17% from 2008 to 2014, more than twice as much as the underlying values.
The problem is less the nominal rate than the actual amount of tax assessed. Taiwan’s byzantine system typically levies taxes based on outdated or falsified values. In 2010, CommonWealth wrote that the same land could have four different values, and on top of that the same property could have two different values. Many of these six values are usually outdated (one index had not been updated in 27 years at the time of the report); many are assessed by local government committees with strong incentives to please donors and via under-assessments; and others are based on self-reporting and are insufficiently scrutinized. “Many property transactions in Taiwan involve three contracts,” says the report. “There is a ‘public contract,’ drawn up to show government tax offices, a ‘private contract,’ which lists the actual terms of the deal, and a ‘fake contract,’ to use to apply for a mortgage. In the ‘fake contract’ the value of the property is inflated.”
The government has recently enacted a new progressive tax on property sale profits based on a combined land and property value, but 84% of poll respondents said this change would not be enough to lower prices.Strong reasons include a loophole exempting the first NT$4 million of profit for an owner-occupied residence (and it is not difficult for owners to change their official property of residence) as well as sales of any homes bought before January 2, 2014—that is, most of the housing stock.
Therefore a powerful measure to lower housing prices would be the establishment of a strict, unified, and annually updated land and property assessment system. This would almost certainly increase tax revenues in the short run, and the higher real rates could push investors into other markets in the long term. However, these long-term gains would only follow intense short-term political pain in the form of a backlash by the homeowners and the real estate industry, so an intrepid leader would be necessary to see this reform through.
2. Make All Property Prices Transparent
The present administration has introduced a housing transaction price registration system, viewable by the public online, to end the longstanding phenomenon of dealers charging customers dishonestly high prices. However an interest group-driven loophole exempted presale housing from the relevant legislation. This loophole should be closed and all property transaction prices made transparent—and used for the new land and property assessment system.
3. Tax Vacant Housing More
According to MOI surveys, 19% of Taiwanese housing was vacant while only 10% was rented out in 2010. Experts believe that because property owners expect prices to continue to rise sharply, they are holding onto their assets rather than risking depreciation by renting them out or selling them before the market tops. On the basis that housing is a public resource that should not be withheld for personal profit, the government could expand the housing supply by sharply raising taxes on vacant housing.
4. Systematize the Rental Market
Experts estimate that as many as 90% of Taiwan’s housing rental agreements are kept under the table because the owners do not want to pay taxes on their rental income, and this deprives as much as NT$5 billion from the treasury. Tenants in such unofficial arrangements cannot take the income tax deduction for rent payment, nor can they claim the rent subsidies for disadvantaged groups. This, coupled with the relative scarcity of accessible housing, makes it quite difficult for the disabled and disadvantaged to find homes. Inspecting living arrangements more rigorously to force landlords to adopt official arrangements would make more tenants eligible for these deductions and subsidies, lowering their housing costs. However, by raising landlords’ costs this measure would also discourage them from renting out properties, a legitimate worry given that the gross rental yield in Taipei is just 1.57%, among the lowest worldwide. Therefore this measure must be linked to reforms reducing the utility of not renting one’s home, such as higher vacant property and real property tax rates.
5. Institute Strict Rules for National Land Auctioned to Private Developers
According to a 2010 CommonWealth investigation of the 50 lots auctioned for the highest prices by the national government for development over the past 10 years, only 26 had been developed yet, and of these only 3 were to offer average-sized apartments of 40 pings (132 square meters) or fewer. 22 more lots had not been developed yet. (The magazine failed to locate the other 2.) Undeveloped lots were often treated as speculative assets and flipped between companies for ever-higher prices.
To make the housing market more equitable, the government could stipulate that future national land auctioned to private companies for residential developments must be for smaller-sized, more affordable housing, and that development must begin within a set time frame (such as two years) or else the land would be forfeited to the government.
6. Build Social Housing for Rental, not Purchase
According to a 2011 Ministry of the Interior survey, there is demand for 330,000 rental social housing units in Taiwan, and a Business Today survey found that 44% of young adults want to live in social housing, and yet only 7,341 such units actually exist, making up 0.08% of the overall housing stock.
Instead of building social housing for rental, Taiwanese administrations to date have offered mortgage subsidies for prospective homebuilders, built housing for sale to private individuals at low prices, with the individuals selected through a lottery system, or auctioned off national land to private developers. Taiwan thus has a very high homeownership rate, 83.9% in 2010. If 100,000 more units were built, rental social housing would still only make up 1.2% of housing stock.
Moreover, the aforementioned mortgage subsidies were long offered not to the general public but to designated groups—first to civil servants, soldiers, and teachers, most of whom were of the “mainlander” ethnic group that came to Taiwan after 1949 and were loyal to the KMT and Chiang Kai-shek, and later on to specified groups like farmers and indigenous peoples.
New rental social housing appears to be a winning campaign promise. In 2014, independent Taipei mayoral candidate Ko Wen-je promised 50,000 social housing units in 8 years and won 57% of the vote, and Taichung mayoral candidate Lin Chia-lung promised 10,000 social housing units in 8 years and won 57% of the vote, both defeating the ruling party. Presidential candidate Tsai Ing-wen is now promising 200,000 social housing units nationwide in 8 years and is ahead about 30 points in the polls. Of course there are other reasons for these politicians’ popularity as well, but social housing helps; a March 2015 poll found 70% of citizens approved of Ko’s social housing policy.
7. More Transparency for Government Housing Projects
A number of politicians have recently used housing projects to enrich themselves. Taoyuan County Deputy Magistrate and former national Construction and Planning Agency head Yeh Shih-wen was sentenced to 19 years in prison for taking NT$20 million in bribes on construction of the county’s low-cost housing. Former New Taipei City Deputy Mayor Hsu Chih-chien is facing charges for taking kickbacks from businesses involved in the city’s urban renewal projects and providing them with favorable scores in reviews of their construction bids. Keelung City Council Speaker Huang Ching-tai was indicted for taking bribes from construction companies and then bribing other city councilors and pressuring city officials to benefit those companies.
Therefore, greater transparency and oversight of the officials in charge of government housing projects is badly needed in order to keep costs down and ensure project quality.
8. Stronger Vigilance against Chinese Investors
Chinese investors have been connected with rising property prices in several U.S. and global markets. Officially, Chinese investors own only a small portion of the Taiwanese housing market due to strict regulation of their activities, but media reports suggest actual Chinese holdings are much larger because many investors make purchases through Taiwanese shareholders and multinational corporations,frustrating attempts by the Taiwanese government to follow money trails. Moreover, some Taiwanese property investors have tolerated higher prices in the expectation the market will be opened further to Chinese in the future, driving prices up. While any government would struggle to prevent all Chinese money flows given the complexity of the legal tools available, stronger inspections and a statement by the coming administration that Chinese speculators will not be welcomed could help bring prices down.
9. Facilitate Urban Renewal by Protecting Residents’ Rights
Taiwan’s housing stock is aging, and urban renewal would renew and increase it. Yet a housing magazine recently estimated that at its current pace, urban renewal of Greater Taipei would take 2,369 years. Many projects have been held up by the protests of residents who feel their housing rights are not being protected. These homeowners have earned much public sympathy, with forced demolitions of residences in Huaguang and Shilin of Taipei and Dapu in Miaoli attracting intense civil society, media, and legal attention.
Eric Lee of First Bank’s Urban Regeneration Department said in 2010, “The government’s publicity on urban renewal has sent the wrong message. It has stressed building new houses and making money, but the problem is that the promise of profits is targeted at developers. To the people who want to continue living in their original locations, the emphasis should be on rebuilding their homes.”In order to rehabilitate urban renewal’s reputation and facilitate future projects that increase the supply of affordable housing, the government must devise models, laws, and systems that better protect homeowners, especially the disadvantaged.
 Over the past 10 years, population has grown notably in the Taipei and Taichung metro areas and held steady in Kaohsiung and Tainan while in the rural areas of central, eastern, and southern Taiwan, based on MOI statistics, which actually underestimate the degree of urbanization since many new city residents keep their rural household registrations, a perennial issue during election time (http://www.thenewslens.com/post/134982/).
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