With grassroots politics gaining momentum, the public is taking aim at high housing prices and low incomes. In the past, it was said that land is wealth, that the property market was the engine driving the economy, that property purchases were a sign of wealth and that a flourishing real-estate market was an indicator of a flourishing economy.
Today, with stagnant salaries and rising housing prices, these benchmarks and indicators are causing social polarization and inflating the asset bubble.
High housing prices have become the most common public complaint, and the government is busy implementing luxury housing and real-estate taxes, a program for affordable housing and rent, interest subsidies for housing mortgages, loan restrictions and an end to the sale of prime government land.
The government’s wish to respond to public complaints is commendable, but with a lack of understanding of the real problem and long-term planning, policies are ineffective and, frequently, contradictory.
The first mistake is the view that prices are so high that no one can afford to buy a home, which has led to a Cabinet plan to build affordable public housing in Linkou that would sell for NT$150,000 per ping (3.3m²). However, Taiwan’s home ownership rate is 90 percent, second in the world only to Singapore. This begs the question of who it is that cannot afford to buy housing and whether such people would be able to afford NT$150,000 per ping.
Late last year, 15 percent of housing in Taiwan was vacant. Is it really reasonable to spend large sums of money on public housing when 90 percent of households own their homes and 15 percent of houses are empty?
Then there is the view that the housing prices are the result of rampant speculation, which has led to attempts to restrict credit for anyone who owns more than two properties. Although this makes some sense, it gives too much credit to speculators while ignoring the fact that the government is speculators’ best friend.
Over the past two years, the government has lowered the inheritance and gift tax considerably, causing a great increase in the inflow of foreign capital. Together with the extraordinarily low interest rate and the fact that property taxation in Taiwan does not consider market value, sales profits or capital gain, this makes property investment very profitable. In such a “positive” environment, the wealthy will of course buy property to maintain the value of their assets and minimize taxation, which draws investors to the real-estate market.
Should this be blamed on speculators alone?
Taiwan’s pension policies are not equitable and many people like to finance their retirement as landlords. Not long ago, the government even promoted a policy to use real estate to finance one’s retirement. Living in one home and investing in a second is very common, but there is a difference between speculation and investment and it is questionable if that difference should be decided by the number of properties owned rather than by how long one has owned those properties.
The third problem is the view that the continuously increasing cost of luxury housing is causing regional housing prices to rise. What is this view based on? Society is becoming increasingly polarized and so is the market. Different groups of people buy luxury housing and normal housing. The National Association of General Contractors says there is a demand for 5,000 luxury homes in Taiwan, but there are only 2,000 such homes available, so demand clearly exceeds supply.
In addition, the Ministry of Finance has stopped selling prime land in city centers, making luxury homes even rarer. The ministry will not increase available land and hopes taxation on luxury homes will cause prices to drop. Isn’t the government going about this the wrong way?
These few examples show us that the housing price issue is very complex and involves major policies such as land planning, the taxation system and capital control policies.
Blaming high housing costs in and around Taipei on luxury housing and speculators is simplistic and irresponsible. Particularly in a free economy, it is common to invest in real estate. Investors, people buying homes to live in, low-income households and high-income households are all looking for different kinds of property. In the case of very low-income households, maybe the best solution would be for the government to follow the example of Hong Kong and provide affordable public housing.
For the wealthy, the fundamental problem is taxes, and to help the vast middle class, the government should see to it that the real-estate business and price evaluation are made transparent to minimize the room for speculation.
Chiang Ya-chi is a doctoral student at the University of Leeds’ School of Law.
TRANSLATED BY PERRY SVENSSON
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