Taiwan’s housing prices are one of the highest in the world, but policymakers don’t seem to understand the gravity of the situation, nor have they taken urgent steps to resolve the crisis. Current measures aren’t enough to bring down housing prices to an affordable level.
In this article, I compare Taiwan with other advanced countries to understand how bad Taiwan’s housing crisis has become. The data on housing prices is obtained from Numbeo, a crowd-sourced database of statistics.
Based on Numbeo’s data, Taiwan’s housing prices are one of the most expensive in the world, as shown in the chart below. For apartments outside the city center, Taiwan’s housing ranks as the 9th most expensive in the world out of 103 countries.
For apartments in the city center, Taiwan’s prices are even higher compared with other countries – the 5th most expensive in the world.
Overall, Taiwan’s housing prices are higher than those in countries like Norway, whose GDP per capita is three times higher than Taiwan’s, and minimum wages are nearly four times higher than Taiwan’s.
Of all the cities in the world, Taipei’s housing prices are also one of the highest in the world. Out of 376 cities, housing in Taipei’s city center is the 12th most expensive in the world. In fact, Taipei’s apartments are almost as expensive as New York and London.
However, is Taipei as dynamic as these cities in attracting investments, and worthy of such high housing prices?
On the Global Property Guide, Taipei ranks as the 12th most expensive city in the world out of 91 cities. Again, Taipei’s apartments are as expensive as in Oslo, Norway and Helsinki, Finland, but wages in these countries are a few times higher than that of Taiwan.
In other words, Taiwan’s housing is way overpriced as compared to its wages and GDP per capita.
Indeed, when comparing housing prices to GDP per capita, Taiwan’s housing prices are the second most expensive among advanced countries, according to the Global Property Guide.
Used by the United Nations Human Settlements Programme (UN-Habitat), the housing price-to-income ratio is a common measurement of housing affordability. The UN suggests that the ratio needs to be 3.0 or less for housing to be considered affordable.
Based on the Demographia International Housing Affordability report, Taiwan’s apartments ranked the second most expensive among eight countries. In other words, against household income, Taiwan’s housing is the second most unaffordable. (The report doesn’t include Taiwan; Taiwan’s data is obtained from the Ministry of Interior for comparison)
According to the report, a housing price-to-income ratio of over 5.0 is considered severely unaffordable. Taiwan’s ratio stands at 9.6.
The report also measures affordability by cities. Housing in all of Taiwan’s 20 cities and counties ranks among the 50 most expensive globally (see red bars in the chart below). Taipei, New Taipei and Taichung rank among the 10 most expensive cities, while Kaohsiung, Tainan, Yilan, Changhua, Nantou, Hualien and Hsinchu County rank among the 20 most expensive cities.
When household income is taken into consideration, the apartments in Taiwan’s cities and counties are more expensive than the majority of cities in the United States and United Kingdom.
Another measure of affordability is mortgage burden, or the share of housing mortgage as part of a household’s disposable income.
Again, Taiwan’s housing is more expensive than all advanced European countries. The share of disposable income that Taiwan’s residents have to fork out to pay for housing mortgage is the highest as compared to these countries.
According to the U.N., the mortgage burden needs to be below 30% for housing to be considered affordable. Taiwan’s mortgage burden makes up 38.35% of disposable income.
To sum up, Taiwan’s housing prices are as high as those of countries like Norway, the Netherlands, and Finland. But with much higher wages, the housing burden in these European countries is lower– housing costs only make up about 20% of the household disposable income.
Mortgage burden is consistently high across Taiwan’s cities and counties – and higher than in the cities in the other countries (below, each red bar represents data for a Taiwanese city and the maroon bar represents data for Taiwan in general).
Mortgage burdens are below 30% only in Chiayi, Keelung, Pingtung, and Yunlin. Housing in the other cities and counties are considered unaffordable. With mortgage burden at 64.91% and 51.45%, apartments in Taipei and New Taipei are severely unaffordable.
According to PricedOut, a non-profit based in the U.K. advocating for affordable housing, with a mortgage burden over 32%, communities in these societies will “begin to experience rapid increases in homelessness.”
According to Numbeo data, housing mortgages make up about 60% of the average cost of living in Taipei, making it the 3rd most expensive among cities in the advanced countries. This checks out with the interior ministry’s data above, which shows Taipei’s mortgage burden to be at 64.91%.
With housing prices so high, Taiwan’s household debt is also one of the highest among the advanced countries. The chart below shows that Taiwan’s household debt makes up a larger portion of GDP than that of most other countries.
Taiwan’s household debt also makes up a larger portion of household disposable income than that of many other countries.
The chart below illustrates how the high housing prices contribute to the high household debt in Taiwan.
Because Taiwan has one of the highest housing prices in the world, Taiwan’s households are suffering from one of the highest debt burdens among advanced countries.
But high housing prices are only one part of the housing crisis in Taiwan. The other side of the problem is low wages, which make housing even more unaffordable to workers.
Taiwan’s housing prices have become one of the highest in the world, but the household income is one of the lowest among the advanced countries.
Taiwan’s housing prices are on par with that of Norway, the Netherlands, and Finland. But Taiwan’s disposable household income is only a third to half the income of these countries.
Household income grows along with wages. Taiwan’s household income is low because wages are low as well.
Indeed, Taiwan’s minimum wage is also one of the lowest among the advanced countries.
The minimum wages of Norway, the Netherlands, and Finland are two to four times higher than Taiwan’s, even though Taiwan’s housing is as expensive as theirs.
Housing in Norway, the Netherlands and Finland might be expensive, but their high wages (one of the highest in the world) make it a lot more affordable than in Taiwan.
Again, Taiwan’s median wage is also one of the lowest among the advanced countries. The median wages in Norway, the Netherlands and Finland are 2.5 to 4 times higher than that of Taiwan.
In other words, Taiwan’s residents are paying one of the highest prices for housing on one of the lowest wages among the advanced countries, which explains why Taiwan’s apartments are so unaffordable.
In Taiwan, the biggest factor in cost of living is now housing costs. In a previous article, I argued that Taiwan’s minimum wage is one of the most inadequate for its cost of living among advanced countries. Including housing costs in the cost of living, the minimum wage, for example, can only meet about 40% of the cost of living in Taipei.
Taiwan’s housing crisis is further compounded by the lack of subsidized social housing.
Currently, social housing in Taiwan makes up only 0.2% of total housing stock, the lowest percentage among advanced countries. If the government is able to achieve its target of building 200,000 social housing units by 2024, social housing will make up just 2.2% of total stock.
In general, countries with higher housing prices have a higher proportion of social housing. This, however, doesn’t apply to Taiwan.
Based on how expensive Taiwan’s housing prices are today, social housing should make up about 10% to 15% of the total housing stock. In other words, Taiwan would need to build 10 times more social housing than what is being planned for today.
But it looks like Taiwan’s policy makers simply do not understand the gravity of the housing crisis in Taiwan today, and are not enacting policies that can meaningfully resolve the crisis.
The chart below shows that countries with higher housing prices tend to have higher minimum wages.
But Taiwan’s minimum wage falls far from the trendline – Taiwan has one of the highest housing prices globally, but its minimum wage is far lower than what it needs to be (see red dot in the chart).
If Taiwan’s minimum wage is on par with other countries based on how expensive the housing is, it should be about NT$70,000 a month today, or about three times higher.
A comparison with countries with a similar GDP per capita shows how inadequate Taiwan’s minimum wage is for its housing prices. In the chart below, Taiwan falls furthest away from the trendline.
The chart below shows that countries with higher mortgage burdens tend to have higher median wages – residents in these countries are better able to afford the mortgage payments.
Taiwan has the highest mortgage burden among the advanced countries, but again, its median wage is far lower than what is needed. In the chart below, Taiwan falls furthest away from the trendline, which means that its median wage is the most inadequate for its housing burden.
Taiwan’s median wage should be over NT$220,000 a month, or more than five times what it is today, if it’s on the same level as its mortgage burden.
Compared with other advanced countries with a similar minimum wage, Taiwan’s housing is significantly overpriced. In these countries, the cost per square meter is generally about NT100,000 and can be as low as NT$50,000, but in Taiwan, the average cost exceeds NT200,000.
Among these countries, housing cost is only a quarter to half that of Taiwan’s. In other words, Taiwanese people should pay 25% to 50% less than what they pay today for housing. This also means that Taiwan’s apartments are two to four times more expensive than they should be.
With the salary Taiwanese workers use to buy one apartment, workers in these other countries can buy two to four. Workers in these countries can also channel the additional wages into paying for other basic necessities, which will enable citizens to meet their basic needs, as well as support the growth of domestic businesses.
On the other hand, Taiwan’s wages are locked up in unproductive investments. Taiwanese workers don’t have enough left to pay for basic necessities, which denies other domestic businesses in other non-real estate sectors higher revenue and profits.
Taiwan’s excessively high housing prices are a threat to the growth of most domestic businesses and stifles their growth, and that of the economy as well.
How much do workers earn in advanced countries with similar housing prices?
The chart below shows that the minimum wages in these countries range from NT$40,000 to NT$100,000. Taiwan’s minimum wage is only NT$25,250, or a quarter to half what workers in other countries earn.
The median wages in these countries range from about NT$85,000 to NT$180,000, as compared to Taiwan’s NT$41,750 in 2020.
In other words, in other advanced countries with similar housing prices, their minimum wage and median wage are two to more than four times higher.
Taiwanese workers are paying housing prices that are far above what they can afford – or two to four times more.
In order to afford the expensive housing, Taiwan’s wages would need to be two to four times higher. Alternatively, housing prices should be reduced by a quarter to half its current amount.
In other words, the minimum wage should be about NT$50,000 to NT$100,000 a month.
The growth of household income is largely dependent on wage growth.
Comparing wages with mortgage burden and housing price-to-income ratio helps us understand how suppressed Taiwan’s wages are, and how much higher they need to be so that workers can afford housing.
To allow workers to afford housing, mortgage burden should constitute no more than 30% of household income and in Taiwan, it means the minimum wage should be raised to at least NT$32,000. Those living in cities like Taipei, New Taipei, and Taichung should be earning a minimum of about NT$40,000 to NT$50,000.
Taiwan’s minimum wage would need to be twice as high.
Similarly, instead of NT$41,750, the overall median wage should also be higher than NT$50,000. Median wages in Taipei, New Taipei, and Taichung should be between NT$60,000 and NT$90,000, or by 1.5 to over two times higher.
For the housing price-to-income ratio to be lower than 5.0, Taiwan’s overall minimum wage should be close to NT$50,000, double what it is today. The minimum wages across Taiwan’s cities should range between NT$40,000 and NT$80,000.
Similarly, Taiwan’s overall median wage should be about NT$80,000 and between NT$65,000 and NT$135,000 across cities.
Taiwan is facing a severe housing crisis.
Taiwan’s housing prices have become one of the highest in the world, while its wages are one of the lowest among the advanced countries. Taiwan’s workers are sacrificing a bulk of their wages to pay for housing and reducing their needs for other basic necessities. Domestic businesses meeting these basic needs are suffering.
Moreover, Taiwan has the least social housing among the advanced countries, leaving residents with very little recourse, except to buy expensive housing and sacrifice other basic needs for a permanent place to stay.
In order to resolve the housing crisis, Taiwan’s government needs to significantly reduce housing prices or dramatically increase wages to enable them to catch up with the high housing prices. It also needs to increase the amount of social housing by at least ten-fold.
However, none of this is being done. Housing prices aren’t being brought down strongly enough while wages are increasing too slowly: over the last two to three decades housing prices have been growing one of the fastest, but the minimum wage has instead grown one of the most slowly among the advanced countries. The government’s goal of 200,000 social housing units is also too low.
Taiwan’s central bank is supposed to implement policies to rein in housing prices, but last year the governor Yang Chin-long had the audacity to say that the goal of making housing affordable for ordinary people has proved “unachievable” and “unfeasible.”
However, the deputy governor Chen Nan-kuang disagreed with him. Chen pointedly said that Taiwan’s “loose monetary policy [has instead helped to] bolster house prices by spurring demand, reducing purchase costs, fueling expectations of price increases and encouraging risk-taking.”
Chen said, “If the central bank’s low interest rate policy has played a part in fostering demand for property and price increases, it should take action to reverse the negative effect of house price increases on wealth distribution, rather than staying on the sidelines and limiting itself to maintaining the stability of the financial system.”
He added, “It is inappropriate for policymakers to contend that low interest rates have little to do with rising house prices.”
Fortunately, at least the central bank has a deputy governor more sensible than its governor, but whether the government takes heed of Chen’s warnings remains to be seen.
Taiwan’s housing crisis threatens to destabilize Taiwan’s economy and in the face of threats from China, unaffordable housing should be viewed as an important national security issue. Economically, the high housing prices can create an asset bubble that weakens the economy and makes it vulnerable to external threats. Socially, the high housing prices can cause resentment among Taiwanese people, which can then be used by external forces to create greater distrust towards the government and divide society.
The government therefore needs to prioritize creating a national housing affordability program aimed at reversing the unhealthy over-speculation of housing prices, and to create an affordable housing program that can more adequately meet the needs of the broader segment of the Taiwanese. For one, the government should look at using its financial reserves to construct social housing at a larger scale, and to dramatically increase wages to reduce the gap between housing prices and wages.
In the next part of this article, I look at the long-term trend of Taiwan’s housing prices and wages, and compare them with other indicators to understand why over-speculation has worsened the crisis in Taiwan today, and threatens to destabilize the economy.
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TNL Editor: Bryan Chou (@thenewslensintl)
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