From Alethios at substack.com
Here is the link.
Here are some excerpts.
The price of housing in Taipei has tripled in the last twenty years. Three-bedroom apartments out in New Taipei City routinely sell for 20x the median annual income, making housing significantly less affordable here than even San Francisco, Sydney, Vancouver, and London1. The result is a generation priced out of housing and a dramatic collapse in family creation.
Learning this was a great shock to me. Taipei seems to be covered in highrises, and with pragmatic and low-cost construction, I assumed houses would be small but reasonably affordable, as in Japan. Instead, dysfunctional urban planning has created one of the world's least affordable cities.
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Counterproductive Taxes
The government levies a range of property taxes. These taxes incentivize certain types of behaviour while disincentivising others. For example, Taiwan levies taxes on ‘amusement places’ like nightclubs, theatres, music venues, magic shows, and dance halls. The tax explains Taipei’s relative lack of these facilities, and also the abundance of bars, cafes, restaurants, and other gathering places that escape having to pay the tax.
The key taxes affecting the supply of residential property in Taiwan are land taxes, housing taxes, and taxes on the sale of housing.
When tax is charged on the value of the land (rather than what sits above it) it encourages landowners to make valuable investments in that site. An alternative approach is to tax the total ‘capital value’ of the property. This encourages the opposite - land banking of vacant lots, and smaller investments than otherwise to minimise the tax burden.
Taiwan’s approach is a mix of the two: a broad-based land value tax that generally encourages efficient use of land, but combined with a housing value tax that discourages housing in particular and allows for a lower land value tax rate. Further, an exemption is made in the land tax law for parking lots, agricultural warehouses, and cram schools9. In a country crying out for more housing, the net result of these laws is that housing is discouraged while vast swathes of premium real estate are wasted on surface parking lots and low-value commercial buildings.
It gets worse! An appropriately titled ‘special privileged tax rate’ for housing taxes is offered for owner-occupied properties. This deduction ranges from 66% to an 80% discount in New Taipei City. In terms of their contribution to the upkeep of the city, this effectively means those lucky enough to own their own home are subsidised by everybody else.
Taiwan also places a range of taxes on the creation of property. New property deeds are taxed at 4% of the value of the property. Partition of an existing property is charged 2% of the combined value. These taxes discourage capital investment in property (relative to other forms of investment like overseas capital markets) and discourage partition of property to enable more people to live in a given area of land.
In another misguided attempt to limit rising sales prices, housing sales are taxed at 6%. With supply/demand unaddressed, this only serves to reduce housing mobility. Instead of downsizing to a smaller apartment once the kids leave home, freeing up the home for a young family, these taxes encourage people to stay on, only to eventually hand the property down to their children once they’re too old to raise a family of their own.
Finally, the government levies a ‘Land Value Increment Tax’, essentially a capital gains tax on property, further discouraging people to sell, reduced investment in property relative to other investment vehicles untaxed in this way (e.g. discouraging badly needed refurbishment of older properties). However, it does allow the city government to capture some of the heightened property values caused by their regulatory regime.
The net effect of these taxes is to create a split society. Those who own property enjoy a range of special tax privileges (especially if they never sell), while the younger and less well-off are squeezed as more of society’s paper wealth becomes locked up in housing.
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