Taiwan Today

Ethnic Chinese people are typically firm believers in the phrase “real wealth comes from real property,” a teaching originally found in the Book of Rites, which is considered one of the five classic Chinese texts. For residents of Taiwan’s cities, however, the teaching has become more and more difficult to follow thanks to high housing prices. In a survey conducted by the Research, Development and Evaluation Commission in late 2009, for example, the high cost of urban housing ranked first on the list of the public’s 10 biggest grievances.

According to the study Housing Demand Survey, Third Quarter 2011 released by the Institute for Physical Planning and Information, a median household in Taiwan would need to devote 100 percent of its income earned over 9.2 years to purchase a median 30-ping (99-square-meter) home. The problem is especially serious in northern Taiwan, where housing prices are higher.

Hua Ching-chun (花敬群), an associate professor in the Department of Finance and Banking at Hsuan Chuang University in Hsinchu City, points out that while most private citizens incorporate the “real property, real wealth” maxim into their life plans, the government has often followed the same principle when addressing the issue of affordable housing. “There are different measures and subsidies to help people purchase property,” he says, as building more housing units and providing subsidies so that more people can own their own homes have been government policies for decades.

The country’s earliest public housing effort was launched in the 1950s to establish residences for the many military personnel, dependents and civil servants who came to Taiwan with the Nationalist government. There were no laws or regulations governing housing projects at the time, so individual government agencies and public schools built their own housing projects based on their own needs. It was not until 1975, when the Public Housing Act was implemented, that public housing regulations appeared in Taiwan.

The purpose of building more public housing, as that act stipulated, was to help middle- and low-income families cope with the problem of unaffordable prices for renting and purchasing homes. Initially, all public housing was constructed directly by the government, while incentives to encourage investment by the private sector were instituted in 1982. Today, some public housing projects occupy purpose-built structures, while others can be found in converted military dependents’ villages and dorms originally built for public school teachers or civil servants. The price for public housing units has typically been set at 10 to 20 percent lower than a given area’s market price, and the original buyers of public housing units can only resell them after living in them for at least one year. After a year has passed, the properties can be resold at full market prices.

Other than the public housing projects and loans, the government has also been involved in developing whole new towns around Taipei City. The first such project was the Linkou New Town development project drawn up in 1968. The development lies about 20 kilometers south of Taipei City and straddles Linkou District in New Taipei City and Gueishan Township in Taoyuan County. In theory, the new town projects were meant to be self-sufficient in services and amenities in order to attract people from big cities, or Taipei City in the case of Linkou New Town. By offering less expensive housing with urban convenience, the new towns were intended to reduce housing demand in the cities.

At the early stage of its development, however, Linkou New Town failed to provide some of the most important elements that attract residents such as jobs and convenient transportation, and only about one-third of the anticipated 250,000 residents moved in. It was not until 1978, when Chang Gung Memorial Hospital’s establishment of a branch in Linkou brought in new business opportunities, that the new town started to see some life. In recent years, the development has drawn more attention from real estate buyers thanks to the construction of a branch line of Taipei’s Mass Rapid Transit (MRT) system that will connect Taipei City with Taiwan Taoyuan International Airport. The new line is scheduled for completion in 2014.

The building of new public housing slowed down a little in the early 2000s but has regained momentum in recent years under President Ma Ying-jeou (馬英九), who has pledged as part of his Golden Decade policy to bring about “housing justice” by making more reasonably priced housing units available. The roots of the Affordable Housing project can be traced back to early 2010, when the Construction and Planning Agency under the Ministry of the Interior (MOI) began drawing up plans to provide a total of 8,000 housing units in Banqiao District, New Taipei City and Gueishan Township, Taoyuan County. Ten percent of the units will be reserved for lease by socially and economically underprivileged families for a maximum of 10 years, while the rest will be sold to such families for 30 percent below market price. Among other restrictions, only families that do not already own homes will be eligible to purchase the units. In a departure from the one year required under previous public housing schemes in Taiwan, buyers of units built under the Affordable Housing project will be prohibited from reselling them for five years.

Catching Up to the Market

Whether in one year or five, however, when public housing units are sold, the price typically rises. “They’re affordable only for those who purchase them from the government,” Hua says. “The price then goes up in the real estate market with each resale and catches up with the area’s market price in no time.”

In May 2011, the Council for Economic Planning and Development came up with a different approach for reducing real estate prices by proposing the Modern Housing program, in which private contractors will construct housing on land provided by the government. “Buyers” of the properties will purchase neither the land nor the structure, but will receive rights to the property for 70 years. The cost of the 70-year lease is expected to be half the property’s purchase price. A piece of land near the Qizhang MRT Station in Xindian District, New Taipei City has already been designated as the first site for construction of Modern Housing units, which are scheduled for completion in the second half of 2013.

Experts, however, have been lukewarm about the Modern Housing program. In his research, Hsieh Ming-jui (謝明瑞), an associate professor in the Department of Business at National Open University, has found that most people in Taiwan are unwilling to accept not owning the land their homes are built on. That situation would be exacerbated under the Modern Housing program, as it does not grant purchasers permanent title to their home’s land or structure.

Hsieh points out that in 1997, the Taipei City Government began selling housing units in which the owner held the title to the structure but not the land it was built on at three public housing projects. Later, the Control Yuan, the government’s watchdog branch, issued a “correction,” saying that the sales of only the structures were illegal, as the Public Housing Act restricts the government to either renting or selling the entire property—land and housing units included. Owners of homes purchased under the 1997 project have since tried to purchase the land rights, but the issue has not been resolved due to the complicated legal problems involved.

Hsieh thinks that although today’s Modern Housing project will not face the legal issues encountered in the 1997 case, selling only 70-year rights to the properties will lead to other problems. To begin with, he notes that the public’s willingness to purchase such units is doubtful because the deeply ingrained concept of “real estate, real wealth” will not disappear overnight.

Reselling is also a problem because only a property’s remaining usage rights can be sold. A family that decides to sell their unit after living in it for 30 years, for example, will be limited to selling the remaining 40 years of rights. That means the actual value of the unit to the owners will drop every year, and that owners will be unable to recoup their initial investment, a concept that runs contrary to the traditional view that rising real estate prices should enable sellers to make a profit. Even worse, these modern housing units, with their falling value, may come to be viewed as slums to be avoided. “The government’s intention to meet the different needs of different people with different housing projects is good,” Hsieh says. “The problem is that [the Modern Housing] project is not going to be workable in Taiwan.”

Meanwhile, since the mid-2000s, the private sector has chimed in with projects aimed at building whole new towns with affordably priced housing. In these projects, private developers bid for large pieces of idle public land in suburban areas and literally build everything from the ground up. Housing prices in these newly built “towns” are lower than those of urban areas since the land cost is lower. Chao Teng-hsiung (趙藤雄), chairman of the Farglory Group, Taiwan’s leading land developer, notes that whether housing units in a private company’s new-town project sell or not depends on how well the town can meet residents’ needs for amenities like schools, markets, transportation and medical clinics. For that reason, Farglory puts extra effort into enhancing the facilities in its town-building projects. The company, for example, offers low rent to attract supermarkets and convenience stores to these new communities. So far, Farglory has built and sold more than 10,000 housing units in its projects in Sanxia, New Taipei City and Linkou.

Wang Wen-yen (王文彥) has worked as a real estate agent for Sinyi Realty for 10 years in both Taipei City and New Taipei City. He notes that many of his clients work in Taipei but live in New Taipei City. Such buyers usually reach a decision on where to purchase their home via a process that forces them to expand their search in concentric circles. In other words, they prefer to look for a home in a small circle close to their workplace, but high real estate prices often drive them outside it. “When what’s in the smallest circle is unaffordable, they have to expand their searches to a larger circle and go on until they find something, which usually ends up being in New Taipei City,” Wang says. “It’s always a tradeoff between commuting time and money.”

Over the years, the private sector and the government have combined to construct about 400,000 public housing units, which are home to about 5 percent of Taiwan’s total households. In addition to continuing to build more public housing, the government has been providing various kinds of low-interest loans to encourage people to buy their own homes. Despite such measures, however, urban housing problems have grown worse because urban land for public housing projects is becoming harder to acquire.

Academics have suggested that one of the things the government can do to ease the housing problem is to improve the balance between renting and buying in Taiwan’s market. Hsuan Chuang University’s Hua Ching-chun notes that in most developed countries, rentals account for 30 to 50 percent of the housing market, whereas purchased homes account for more than 80 percent of the market in Taiwan. Hua says that rented public housing “allows people to save the money they need to purchase their own home later on. It provides concrete help for economically underprivileged people and is likely the only way for them to get by in such a capital-oriented housing market.”

Social Housing

Scholars like Hua have been promoting the concept of social housing—or public housing made available only to renters at below market rates—for about a decade now. Meanwhile, although it has not made a big priority of building such housing until recently, the central government did begin leasing a small number of social housing units to low-income families in 1980. About 85 percent of those homes, or 3,833 units in 23 locations, are in Taipei City.

Depending on their size, location and age, such units in urban areas can be rented for up to 12 years for between NT$2,700 and $12,000 (US$90 and $400) a month, or between 20 to 50 percent lower than a given area’s market price. The problem is that public housing units account for less than 1 percent of Taipei City’s total housing supply, which means that demand is much higher than the supply. Currently, there are more than 6,000 applicants in line for social housing in the city and the wait averages between three and six years. Another problem is that land in urban areas is expensive, which makes it more expensive for the government to build new public rental housing.

In 2010, the MOI put a stronger focus on social housing by announcing a project that will build 1,661 units in five locations in Taipei City and New Taipei City. Scheduled for completion in 2015, the units will be leased to economically and socially underprivileged households or individuals for 30 percent less than average rental rates in the area. Although the units will be constructed on public land, the project has been drawing heavy protests in each of the five areas from local residents who worry that the value of their homes will decline.

Another rental-only public housing scheme is the Youth Housing project originated by Lee Hong-yuan (李鴻源), who served as minister of the Public Construction Commission before being appointed minister of the interior in February this year. The concept of that project is to convert idle public facilities such as dormitories or warehouses into smaller rental housing units that will be attractive to young people. In Zhonghe District, New Taipei City, a vacant police dormitory is being renovated into a 22-household Youth Housing “demonstration” site that is scheduled for completion later this year.

Currently, Taiwan’s rental-only public housing units account for just 0.08 percent of the total housing supply. While Hua Ching-chun is positive about the government’s intention to provide social housing, he believes that the effort does not go nearly far enough. “The problem is that there are too few of the units and thus they can help only a small group of people,” he says. “To solve the housing issue, we need to work out an all-encompassing housing policy rather than just building limited public housing for rent or sale.”

The comprehensive housing policy that experts like Hua are increasingly calling for would include measures to establish a fair land and housing tax system, ease housing price hikes and reduce the housing vacancy rate. In the meantime, while those in the real estate industry continue to argue that housing prices in Taipei are still lower than those in Hong Kong or Japan, more and more members of the public are finding that buying real estate is still a real problem.

Write to Jim Hwang at jim@mail.gio.gov.tw