Earlier this month, the Housing Justice Reform Alliance held a rally in Taipei’s East District (東區) to protest money-power structures. Of its three demands — that the government should implement a system that registers real transaction prices, impose a tax on owning multiple homes and fulfill political pledges to build social housing — the tax on multiple homes is the most controversial.
This means that the tax rate would be lower for those owning a single home and higher for those owning multiple homes.
As with income tax, the government could adopt a progressive tax rate that would discourage homeowners — because of the higher holding cost — from buying up extra homes and reduce the burden on homeowners with a single property.
However, some argue that a multiple homes tax would push landlords to transfer the cost to tenants, increasing their burden.
Economically, any tax rate increase is ultimately shared by the seller and the buyer. The question of whose burden will be greater depends on supply and demand, with the less adaptable paying more tax.
If tenants have no option in the market, the imposition of a multiple homes tax would result in a rent hike. Conversely, if tenants have too many options, the nature of the market mechanism means that the tax would be covered mostly by landlords.
The house rental market can be divided into two categories: houses that are rented and houses waiting to be rented.
For houses waiting to be rented — such as empty stores in the East District or vacant rental homes around certain schools due to the declining birthrate — a multiple homes tax would be covered by landlords, as there are no tenants.
In such areas, it would be absurd for landlords to raise rents if the government imposes a multiple homes tax. If they cannot find tenants at current rents, why would people be willing to rent their houses for even higher rents?
That being so, the rising holding cost of their properties would force landlords to lower rents to offset the higher opportunity cost, and could even force them to sell their properties, increasing the housing supply and lowering transaction prices.
However, houses that have been rented out would face the problem of who should pay for the tax.
As stated above, the key lies in which side is less flexible. If a landlord’s property is so popular that someone will rent it as soon as a tenant leaves, then the landlord will be able to raise the rent.
However, if there are other empty properties for rent in the neighborhood, raising the rent would do little to attract tenants.
The latest government data showed that there were 864,835 empty residential properties in 2017 and 80,082 new properties for sale in the second quarter of last year.
Given these figures together with the low birthrate, how many Taiwanese landlords will be able to arbitrarily raise their rents?
Yang Chih-yuan is an assistant professor in National Taiwan Normal University’s civic education and leadership department.
Translated by Eddy Chang
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