Many Apartments in newly constructed buildings remain unsold, but this does not mean that too many homes are being built. The problem is that units in new buildings cost more than most people can afford. Most people would prefer to buy a new apartment, but high prices force them to go on living in older buildings.
Economic conditions will certainly cause housing prices to fall, but rigid land prices and construction costs mean that they will not decline much over the short term.
Eventually, housing might return to its original purpose of spaces to live in rather than being investment tools. When there are no windfall profits to be made, people will no longer speculate on real estate. Only then will prices sink back down to reasonable levels.
Three measures could help achieve lower prices.
First, the pattern of real-estate development is such that solving the pricing problem in the greater Taipei region would solve it for at least half of Taiwan.
The fastest and most effective way to bring down home prices in Taipei would be to relax the floor area ratio that applies to the residential areas — for example, from 225 percent to 300 percent. Coupled with positive and practical policies governing the reconstruction of older buildings, this could bring down the price of newly built ones.
Second, if Taipei relaxed capacity limits for buildings in residential areas, more projects for reconstructing older residential buildings could go ahead.
The original owner-occupants of older buildings would no longer need to look for properties elsewhere, thus cutting the demand for exchanging homes.
The extra units gained through capacity bonuses could also be sold to outsiders, thus increasing the supply. The combined effect of falling demand and growing supply would make it easier for home prices to be adjusted downward.
Third, if prices stop rising, residential property will lose most of its attraction for speculators, allowing prices to return to reasonable levels.
Of course, even if prices fall, they would not fall enough so that everyone could afford a home. After all, developers will not build homes if they are going to make a loss or just break even.
The combined effects of these measures could resolve the problem of excessively high prices within a few years, but they would not achieve this all at once, as some so-called experts claim, nor would empty rhetoric achieve it.
New home prices would have difficulty falling drastically — such a decrease could maybe only happen over a long period. On the other hand, prices of older homes have fallen markedly in the past few years, but older homes can be unsafe and uncomfortable to live in, so younger people do not want to buy them.
Falling prices for older homes only takes a little pressure off people who are looking for a place to live. Those who cannot afford new homes that are “good enough” will just have to live in older ones.
However, if the older buildings are unsafe, this is not real “housing justice.” As long as this situation goes on, the price gap between older and new homes will continue to grow.
William Hu is chairman of the old-home reconstruction associations in Taipei and New Taipei City.
Translated by Julian Clegg
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