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taiwan housing protest april 2010
Op-Ed

The factors and implications of rising housing prices in Taiwan

Yi-Ling Chen

Taiwanese media say that Taipei housing is so expensive that the average household would have to “neither eat nor drink” for over fifteen years in order to own a place.[1] They use this statistic to explain the high costs of housing and the difficulty of achieving homeownership. Skyrocketing prices have also made housing a political issue. Increasing the supply of social housing, or finding methods to curb rising prices, has become a key issue in each major election since 2010. Possible housing solutions are constantly under debate and, due to resistance from different interest groups, making slow progress.

How expensive is the housing in Taipei? The popular calculation of “fifteen years of not eating or drinking to own a place” is based on the ratio of median housing price to median annual household income, which rose from 8.9 to 15.7 between 2005 and 2014.[2] According to a similar survey done by Demographia International Housing Affordability Survey, the ratio is 17 for Hong Kong and 10.6 for Vancouver, two of the most unaffordable cities in the world, with London at 8.5 and San Francisco at 9.2.[3] This makes Taipei among the most unaffordable cities in the world.[4] The average household in Taipei has to pay two-thirds of its income for a mortgage, which is far above 30 percent, which is deemed the affordable limit (See Table 1).[5]

Since 2005, housing prices have more than doubled in Taipei. The average 30-ping (1067.4 sq. ft) apartment costs about $620,000 (USD). While Taipei has seen the most serious increases, prices are rising all over Taiwan. Between 2005 and 2014, average housing prices in Taiwan rose 70 percent and have continually exceeded the affordable mortgage to income level (see Table 1). Monthly salaries have been stagnant, increasing only by 12.25 percent, which is less than the inflation rate. Meanwhile, average economic growth rate was a mere 3.92 percent, lagging far behind rising housing prices. 


Table 1



Contributing factors to high prices

This is the third major jump in housing prices since the 1970s oil crises. The first jump was due to the inflation caused by rising oil prices. The second jump, in the late 1980s, was mostly due to hasty economic liberalization. Taiwan had come under pressure from the Reagan administration to reduce excessive trade surpluses by opening its markets.[6] The subsequent price increase was huge, with Taipei housing prices more than doubling between 1987 and 1990.[7]  Financial deregulation and rapid appreciation of Taiwan’s currency attracted a surge of foreign capital. Excessive savings and low interest rates formed a large supply of money that drove property speculation. This economic chaos triggered a substantial housing movement in Taiwan in 1989, known as the “Shell-less Snail Movement,” referring to the many people unable to own homes.[8]

This third jump began in 2005 during a time of slow economic growth and has continued through the 2008 global economic crisis to the present. The main cause was the massive return of Taiwanese overseas capital, due to the uncertainty of global financial markets and the rising labor costs in China. This effect was perpetuated by a policy to attract returning capital by reducing inheritance taxes from 50 percent to 10 percent in 2009. Since many production lines had moved overseas, the returning capital investors were not interested in investing in industrial development. Additionally, Taiwan’s tax system, which made real estate investments an effective way of avoiding taxes and storing money, further encouraged the flow of returning capital into the real estate market. 

Low interest rates on mortgages (below 2 percent since February 2009) have also played a significant role in this third jump. Once again, excessive savings is one factor, but compared to the second housing surge in the 1980s, this time the rise has resulted more from business and company savings rather than general household savings. During the third jump, the average household’s savings rate has been decreasing, especially among low-to-middle income households, demonstrating that third wave speculators are wealthier than their earlier counterparts.[9]

Another factor is a 2002 law that allowed Chinese nationals to enter Taiwan and purchase property. Taiwan does impose restrictions on buyers from China, such as a 50 percent minimum down-payment, residency of no more than four months per year, and no resale within three years. This so-called “543 rule” also limits the total number of housing sales to mainland Chinese buyers. So far, only 191 transactions have been officially approved.[10] However, many real estate investments are conducted through transnational corporations, which may include Chinese shareholders, making the real impact of Chinese capital in Taiwan’s real estate market difficult to ascertain. Since 2002, the number of land and building rights obtained by foreign nationals have significantly increased, especially land rights, which, unlike in mainland China, can be privately owned in Taiwan (see Table 2). On the other hand, the influence of this capital influx can be publicly exaggerated, which fuels speculation as local property investors anticipate future buying by Chinese nationals.[11]

Housing has also been seen as a good investment and a default way for households to store value as their wealth increases because abrupt drops in housing prices are largely unknown. The pro-market housing policies enacted since 1990 have played an important role in stabilizing the housing market. During economic slumps, such as the Asian financial crisis in 1997, the 9/11 incident in 2001, the SARs outbreak in 2003, and the global financial crisis in 2008, the government provided additional funds for low-interest mortgages. In 2001, the land value incremental tax rate was reduced by half, which also helped spur the housing market.[12]

Table 21

Author

The effects on Taiwan’s economy, society, and politics

Speculation has increased social inequality and the number of the superrich. Buying property has been a sought-after avenue to park money for the rich people all over the world. In Taiwan especially, the profit from investing real estate is especially attractive and has become a fast way to accumulate wealth. The top five percent income earners made 32.7 times that of the lowest five percent in 1998, and rose to 96.6 times in 2012.[13] Especially after 2000, the top one percent accumulated more wealth faster than all other income brackets. Chu, Chow and Hu (2015) compared the accumulation of wealth in Taiwan to the rest of the world by using the World Top Income Database.[14] According to the database, the top one percent in Taiwan earned 10.85 percent of all income in 2014.[15] The speed of this increase exceeds Japan and is getting close to that of South Korea and Singapore.[16] The number of Taiwanese billionaires listed in Forbes increased from five people in 2009 to 38 people in 2015. Among the top five wealthiest people, two of them are in real estate business.[17] Wealth in Taiwan is increasingly reliant on capital gains from the housing market rather than real production.[18]

The problem of housing affordability has impacted more and more families, and due to this economic pressure, the structure of family life itself has gradually changed. Examples of this trend include young people delaying marriage, lower marriage rates, and lower fertility rates. The birth rate in Taiwan dropped to 0.9 in 2010, among the lowest in the world.[19] These changes are a reflection of a growing generational gap. Younger generations do not follow their parents’ path of creating new families, nor do they have similar economic means to accumulate wealth. A recent survey by Business Today shows that 50 percent of the young people from 25 to 40 years old live with their parents in order to save on housing costs.[20]  “Falling Generation,” a popular book published by Taiwan Labor Front, a major labor organization, explains this generational crisis facing Taiwan.[21] Real estate speculation is one factor to blame.[22]

For these outlined reasons, the housing movement is regaining momentum. The Social Housing Advocacy Consortium was formed in 2010 by 14 NGOs working for various disadvantaged groups. Although the idea of social housing was new and unclear for most people, the concept immediately began to receive popular support. The concept of social rental housing is similar to public housing in the United States. The Social Housing Advocacy Consortium strategically uses elections as a crucial moment to push policy reforms.[23] The Housing Act, which seeks “to establish a robust housing market, improve the quality of housing, and thus allow all citizens to enjoy suitable housing and a dignified living environment,” was enacted before the presidential election in 2012.[24] The mayors elected to the six major cities in 2014 all stated their goal to increase the number of social housing units. Taipei’s new Mayor, Ko Wen-je, promised to add 50,000 units. Recently, Taiwan’s Legislative Yuan approved a property tax plan proposed by the Ministry of Finance ahead of the coming presidential election in 2016. The contents of these new policies are still far from perfect but progress is slowly being made.

Possible policy solutions and challenges

What can the government do to mitigate negative effects? The best ideas so far have actually come from different participants of the housing movement rather than from the government and are focused on tax reform, rental housing market regulation, and increased social rental housing. These ideas, however, are unlikely to be fully embraced by the central and municipal governments or policymakers.

Additionally, housing in Taiwan is a speculative instrument, which can be seen via the combination of the “Three Highs”:  high homeownership rates, high vacancy rates, and high housing prices. Taiwan’s homeownership rate reached 83.9 percent in 2010, against a vacancy rate of 19.3 percent.[25] In Taipei City, home ownership was lower at 75.2 percent but the vacancy rate of 13.4 percent was still unusually high. The percentage of vacant housing is striking, as well as its skyrocketing value. These three contradictory features can co-exist because of very low taxes. Low housing transaction taxes encourages investing in housing, while low property tax reduces the cost of keeping property.[26] It is quite astonishing that the annual tax on owning a car is much higher than the tax on owning property. As a result, housing can be treated as goods in storage.

Tax reforms are necessary to change the existing land and housing tax systems, which are based on estimated rather than real housing values. This greatly underestimates taxes on trading and holding property. The high housing prices and booming housing market, therefore, are not able to contribute to a large proportion of tax revenue. Tax reform is a difficult task to undertake because private developers have been influential in politics either as donors in campaigns.[27] The property tax plan recently passed by Taiwan’s Legislative Yuan is still problematic because it leaves room for tax avoidance. For example, capital gains of four million NT dollars or less will be not be taxed. In some cases, taxes are even lower than before.[28] This process follows the typical pattern of policy reforms in Taiwan. The government and the legislators make some changes in response to the public, but the reforms are restrained due to continued protection of private developers’ interests.

Taiwan’s housing system is built upon the principles of a free market system. Rebecca L.H. Chiu, a professor in the Centre of Urban Studies and Urban Planning at the University of Hong Kong, noted that Taiwan has the freest housing system in East Asia.[29] The government has played a passive role both as a supplier and regulator of housing. The housing provided by government-funded housing projects consists of only 5.3 percent of all housing stock, and this housing is primarily to own, not rent.[30] Promoting homeownership has been the dominant goal of housing policies because placing housing in the private sector can reduce government responsibility. Since the 1990s, low-interest mortgages have been the primary mechanism for government housing regulation and only a small, limited budget is available for rent subsidies.

Regulating the rental housing market is challenging because most rental operations are small in scale. According to Global Property Guide, gross rental yield in Taiwan is only 1.57 percent, which means the return from rental investment is very low.[31] The small market and low return hinder the establishment of professional rental companies. The efforts to change the rental housing from a primarily informal market to formal market demands  various considerations, such as how to improve the quality of rental housing and not discourage private owners  from releasing rental housing. Regulation will need to include housing tax reforms to give incentives for landlords to rent and discourage owners from holding onto vacant housing.

The percentage of public rental housing is strikingly low, at only about 0.08 percent of all housing stock. According to a survey by the Ministry of Interior in 2011, 86.8 percent of the people support the concept of social rental housing.[32] Even private developers support social housing because they believe there should be a separation between for-profit and not-for-profit housing, and the latter should be taken care by the government. The challenge is making this concept into a reality. Most neighborhoods do not welcome social housing projects and public urban lands are increasingly scarce, which makes finding housing locations difficult.

Regulating the rental housing market requires stronger public sector involvement in coordination and management. When the construction of public housing stopped in the early 2000s, housing offices were also impacted. Capacity has been further constrained by increasing deficits due to slow economic growth and low taxes. Taiwan’s tax revenue was only 12.8 percent of GDP in 2012, which is much lower than Singapore (14.1 percent), Japan (16.8 percent), South Korea (20.2 percent), or the OECD countries (average 33.8 percent in 2010).[33]

Conclusion 

Although new housing policies are facing many political and financial challenges, social discontent keeps pushing the government and policymakers to act. Housing inequality has become a political issue that mayors in major cities and the president have to enact policies to improve the situation. Some people in Taiwan think the housing market has been inflating and the problem will resolve naturally once the bubble busts. Others worry that Taiwan is following Japan’s path, with its “lost decades” of economic stagnation. It is questionable whether or when the bubble will burst, because the speculative investments come from excess domestic capital, savings, and a continuing influx of foreign capital. Tax reform will cool down the speculation, but prices will fall slowly at best. No matter how high or low housing prices get, there will always be a demand for low-income rental housing, which thus far has been neglected by housing policies. The current 0.08 percent share provided by social rental housing is far too low to take care of social needs.[34]      



[1] Xu Yiping, “To buy a house in Taipei, don’t eat or drink for 16 years” Liberty Times, May 5, 2012. Chinese: http://news.ltn.com.tw/news/business/paper/879666

[2] Taiwan Ministry of Interior, “Housing Demand Survey,” Institute for Physical Planning and Information (IPPI), Taipei: (2004-2014). Chinese: http://www.ippi.org.tw

[3] Taipei is not included in this survey; Angel, Shlomo. “11th Annual Demographia International Housing Affordability Survey: 2015,” Demographia, (2014: 3rd quarter): 33: http://www.demographia.com/dhi.pdf

[4] Alisha Haridasani, “Big prices in little Taipei: Why is property so expensive in Taiwan’s capital?” CNN, April 23, 2015: http://edition.cnn.com/2015/04/22/business/taiwan-taipei-expensive-housing-market/

[5] Taiwan Ministry of Interior, “Housing Demand Survey,” Institute for Physical Planning and Information (IPPI), Taipei: (2004-2014). Chinese: http://www.ippi.org.tw

[6] Mi, Fu-Kuo, “Public housing Policy in Taiwan,” Taiwan: A Radical Quarterly in Social Studies 1 (2/3; 1988): 138. Chinese

[7] Prices more than quadrupled for newly constructed housing. 

[8] Yi-Ling Chen and Herng-Dar Bih. “The Pro-Market Housing System in Taiwan,” Housing in East Asia, eds. John Doling and Richard Ronald. (Palgrave MacMillan, 201): 205-229.

[9] Hu Sheng-Cheng. “Examining social inequality in Taiwan from income to price ratio,” Taiwan Economic Forecast and Policy 45, no. 2 (Taiwan: Institute of Economics, Academia Sinica, 2015): 32. Chinese. http://www.econ.sinica.edu.tw/content/periodicals/contents/2013090215154369017/?MSID=2015041011173318325

[10] Taiwan Ministry of Interior, “Opening land resources to Mainland visitors for real estate investment,” Department of Land Administration, (2015): Chinese. http://www.land.moi.gov.tw/chhtml/content.asp?cid=992&mcid=1544&qcode=

[11] Chen and Bih. 2014

[12] Ibid.

[13] Chu, Cyrus C. Y. and Ting Yueh Kang, “Social inequality in economic transformation,” Taiwan Economic Forecast and Policy 45, no. 2 (Taiwan: Institute of Economics, Academia Sinica, 2015): 9.   http://www.econ.sinica.edu.tw/content/periodicals/contents/2013090215154369017/?MSID=2015041011173318325

[14] Chu, Cyrus, Teyu Chow and Sheng-Cheng Hu, “Top Income Shares in Taiwan 1977-2013,” World Top Incomes Database Working Paper, (2015/2)

[15] Alvaredo, Facundo, Anthony B. Atkinson, Thomas Piketty and Emmanuel Saez, The World Top Incomes Database, accessed July 9, 2015: http://topincomes.g-mond.parisschoolofeconomics.eu

[16] Chang, Shang-Yi and Chen, Yi-San, “Top 1% is taking out of 11%: The reality of social inequality in Taiwan,” Commonwealth Magazine. (2015): Chinese. http://www.cw.com.tw/article/article.action?id=5064092

[17] Flannery, Russell, “2015 Forbes Billionaires: Taiwan Boasts 7 New Members, Snack King Slims Down,” Forbes. March 2, 2015: http://www.forbes.com/sites/russellflannery/2015/03/02/2015-forbes-billionaires-taiwan-boasts-7-new-members-snack-king-slims-down/

[18] Hu, Sheng-Cheng. 2015.

[19] Taiwan Ministry of Interior, “Fertility Rates of Childbearing Age Women,” Statistical Yearbook of Interior, Department of Household Registration Affairs, (2015): sowf.moi.gov.tw/stat/year/y02-04.xls

[20] Jin, Zhoukan, “Housing Survey of Young Adult,” Business Today, April 8, 2015: Chinese. http://www.storm.mg/article/45838

[21] Lin, J.H., J.S Hung, J.H. Li, J.C. Wang and F.Y. Chang, “The Falling Generation: The Crises of Big Corporation, Poverty, and Low Fertility Rate,” (Taiwan: Taiwan Labor Front, 2011)

[22] Chen and Bih. 2014

[23] Ping-Yi Lu, Public talk, Graduate Institute of Building and Planning, National Taiwan University. June 17 2015.

[24] Ministry of the Interior, “Housing Act,” Laws and Regulations, Republic of China (Taiwan):  http://www.moi.gov.tw/english/english_law/law_detail.aspx?sn=176

[25] The calculation of homeownership rate is actually very loose so the actually number should be lower. “With high home ownership rates, and a minority of representation for those who cannot afford to buy a house, is Taiwan a happy place to live?” 393Citizen, June 19, 2014, Chinese. http://www.393citizen.com/estate/tax/columndt.php?id=102

[26] Chen and Bih, 2014

[27] Peng, Yang-Kai, “High housing prices, real estate tax reform, and the ruling land class,” Commonwealth Opinion. May 2, 2014. Chinese. http://opinion.cw.com.tw/blog/profile/259/article/1338

[28] Sun, Cheng-Yi, “Three fallacies in housing and land tax reform leave room for tax evasion.” United News. May 15, 2015, Chinese. http://udn.com/news/story/7339/903591-房地合一稅改-3謬大開逃稅門

[29] Chiu, R. L.H. “Government intervention in housing: Convergence and the Asian dragons,” Journal of Urban Policy and Research 26, no. 3 (2008): 249–269.

[30] Chen, Yi-Ling and William Li, “Neoliberalisation, State and Housing Market: Transformation of Housing Policies in Taiwan,” Journal of Geographical Science 59 (2010): 105-131. Chinese. ics.nccu.edu.tw/ced/admin/data/PANEL-C/C9.2.pdf

[31] “The gross annual rental income, expressed as a percentage of property purchase price. This is what a landlord can expect as return on his investment before taxes, maintenance fees and other costs.” – “Gross Rental Yields – Taiwan Compared to Continent,” Global Property Guide, http://www.globalpropertyguide.com/Asia/Taiwan/rent-yields

[32] Taiwan Ministry of Interior. “Survey of Social Housing Demand,” 2011. Chinese. sowf.moi.gov.tw/stat/Survey/社會住宅需求調查綜合報告.doc

[33] “Advice on Tax Reform.” Academic Sinica Report. no. 12. (Taiwan: Academic Sinica, 2014): Chinese. https://www.sinica.edu.tw/advice/advice_tax.pdf

[34] This article has to express thanks for the comments from Ping-Yi Lu, chief executive officer of Tsuei Ma Ma Foundation for Housing and Community Services, Yang-Kai Peng, chairman of the Organization of Urban Re-s, and Ian Rowen. 

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