The issue of a property hoarding tax made headlines recently after the Taipei City government suggested that the central government raise housing tax rates to help young people cope with a dearth of available housing.
However, the Ministry of Finance rejected the city government’s suggestion to raise the tax nationwide, reasoning that Taiwan has a diverse range of housing markets with different needs. In addition, the ministry did not want to amend national regulations that might solve the problem of vacant houses in Taipei or New Taipei City, but create new issues in other counties and cities.
The real issue is not whether raising housing taxes would curb property hoarding, but whether a higher tax would keep prices from rising or push them even higher.
According to the House Tax Act (房屋稅條例), owner-occupied or self-use properties are taxed at an annual rate of 1.2 percent to 2 percent of their current assessed value. In 2014, the central government introduced a hoarding tax on owners of more than one house — with rates for nonowner-occupied residential properties ranging from 1.5 percent to 3.6 percent — and authorized local governments to determine the actual tax rates on those nonresidential houses or adjust the property tax base (such as the assessed value of properties).
Still, the problem of vacant houses remains unsolved, and home prices have stayed high over the past few years. This is because most local governments levy the minimum hoarding tax rate of 1.5 percent to avoid a political backlash from voters, and the government’s loose definition for nonresidential housing makes it less effective to levy the hoarding tax.
Under the Taipei City government’s proposal last month, properties would not be classified as owner-occupied or nonowner-occupied and the central government would cancel preferential rates for those who own up to three houses. Additionally, the city government proposes a progressive tax rate for owners of multiple houses, with housing tax rates set to be 1.2 percent for the first house, 1.5 to 2.4 percent for the second and third, 2.4 to 3.6 percent for the fourth and fifth, and 4.8 percent for the sixth and above.
This proposal is similar to the progressive property tax rate plan launched by the New Power Party (NPP) in September, which looked for ways to slow the rise of property values and put more vacant homes on the market.
In either plan, the idea is that a progressive property tax can reinvigorate the housing market, by encouraging owners of multiple houses to put some of them back on the market. This idea is theoretically correct, but it is inconsistent with the present reality that the housing market varies regionally according to socioeconomic conditions.
Property hoarding in Taipei or New Taipei City is more severe than in other areas, because housing demand is more acute there. Meanwhile, new housing lags due to slow progress in urban renewal and public housing construction.
If supply continues to be lower than demand, raising taxes will only lead to higher market prices.
Without imposing a unilateral tax on vacant properties nationwide and ditching other tools available under the House Tax Act, these proposals cannot help solve the hoarding problem without making it more complicated across the nation.
Even worse, it would increase the tax burden of those who own more properties in rural areas, where populations are decreasing and demand is low.
People in Taipei know it is important to establish a healthy residential housing market, develop a sound rental market and provide more public housing in order to address the housing problem, but they may not know that what works in Taipei may not work elsewhere.
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