Taiwan’s housing prices have risen to its highest ever this year. Over the last two decades, Taiwan’s rising housing prices are one of the fastest among the advanced countries. The steady rise has been observed even as that of other advanced countries has declined.
Taiwan’s minimum wage grew one of the slowest, both since 2005 and 2021. Its growth is expected to be on par with other advanced countries. Taiwan’s housing price relative to minimum wage has thus become one of the highest among the advanced countries, if not the highest.
Its mortgage burden is thus one of the highest, if not the highest. The income needed for the down payment of a median-value house has been growing rapidly, but Taiwan’s median disposable household income has been growing much more slowly.
High housing costs are due to low mortgage interest, and while interest rates have been raised over the last year, they are still too low. Countries with fewer dwellings built more new dwellings, but Taiwan built fewer dwellings than it could. In the chart below, Taiwan falls further from the trendline than other countries.
In 2022, Taiwan’s new dwellings comprised only 1.2% of total housing stock, but it could have built around 1.75% of new dwellings, or about 50,000 more new dwellings.
Countries with fewer dwellings have higher mortgage burdens, as is Taiwan’s case. Among Taiwan’s six special municipalities where 70% of the population reside, cities which built fewer new dwellings also have higher mortgage burdens.
Taiwan’s developers are also scaling back or delaying projects in order to “artificially” push up housing prices. Since 2017, more residential housing licenses have been issued, but the actual number of residential housings completed is far lower.
Among advanced countries with higher mortgage burdens, property taxes as a proportion of GDP are higher. However, Taiwan’s property tax share is very low.
Countries with higher savings as a proportion of GDP have higher mortgage burdens, and they also have higher profit shares. However, Taiwan’s profits are disproportionately high relative to savings, and contribute an out-sized proportion to its savings. Taiwan’s profits are strongly correlated with savings and inversely correlated with wages. In some countries, profits are not so strongly correlated with savings, thus Taiwan’s profits play a disproportionately significant role in the accumulation of savings.
Prior to the 1997 economic crisis, Taiwan’s wages were growing in tandem with its profits, but they decoupled after the crisis; the same occurred between savings and investments.As Taiwan’s companies earned higher profits, they invested relatively less, and the excess savings resulted in excessive housing speculation.
Savings and investments in other advanced countries are growing proportionately relative to each other, but Taiwan’s savings are much higher. Thus, Taiwan’s wage and net production tax shares have been declining, as its savings share is correspondingly rising.
