In the mid-1980s, Taiwan's real estate market thrived, and the construction industry flourished for many years. Since then the feverish enthusiasm for housing investments has cooled, while a very perplexing phenomenon has persisted. The speed of the drop in housing prices is extremely slow and the scale small, so it is still very difficult for most people to buy a home.
The fact that low interest loans offered by the government are still available while a large number of vacant housing units remain on the market proves that there is still a huge gap between market supply and demand.
Why do housing prices still remain so high?
The people of Taiwan don't like to concede defeat. Many people who lost a great deal of their money in the stock market are still holding on to their penny stocks and not selling. They hope that one day the stocks will go back up to their original price. They completely neglect the opportunity lost from not reinvesting their capital.
Those investors sitting with paper losses from real estate investments can still rent out their housing units and recoup some of their losses. However, rental income is limited and the economy may be entering a recession.
Whether or not housing can be rented out has also become questionable. Is buying a house and collecting rent a wise investment?
Using Taipei's rental market as an example, a 25-ping (82.5m2) home costs about NT$6 million. If the monthly rent were NT$25,000, then the gross yearly income would be NT$300,000.
But housing depreciates in value. An owner also has to take into account the yearly costs of housing taxes, land taxes and repairs, one's yearly net profit might fall short of NT$200,000. If one encounters bad tenants who fall behind in paying their rent or damage the house, one's net profits might be even lower.
On the other hand, if one simply deposits NT$6 million in the bank, there is no need to worry at all, and based on current interest rates, the annual income from interest would be at least NT$240,000. Thus buying a house and relying on rental income is not a wise investment.
If market forces were to fully coming into play, then with so much vacant housing available, prices should fall. However, the same denial-of-defeat psychology that is apparent in the stock market also applies to the real estate market. Most people generally feel that by not selling their housing acquisitions, these assets will always be theirs and sooner or later the price will go up. This kind of reasoning has led to the high rate of vacant housing and large number of people who do not own a home.
From the above example, we can see that if housing is rented out, then one can still receive some income from it, but housing that isn't rented out is still liable for housing taxes, utility bills and so on. For landlords who own many housing units, however, these costs are negligible.
If we want vacant housing units to be available to the market, we must increase the cost of holding vacant units, thus encouraging owners to sell their housing. When the supply of available housing increases, housing prices will naturally fall to relatively reasonable levels.
Levying a tax on vacant housing is another way to increase the cost of holding vacant units.
"Every dweller to have their own dwelling" is the dream of people who do not own their a home. To realize this dream, appropriate policies must be implemented.
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