Sunday, June 15, 2014

The Developmentalist State is Cannibalizing Taiwan

Goodies at a small shop near Jiufen.

It's a wondrous transmutation, where the blood of one man is turned into the money of another. Lead into gold is nothing to it. 

Several good pieces in Taipei Times this week on the developmentist state that runs the domestic political economy and its negative effects on local lives and the island's environment. Commentator Lai Min-huang observes that Chiayi floods are man-made:
On June 3, Changhua, Yunlin and Chiayi counties and Greater Tainan were hit by a series of thunderstorms. Most streets in Chiayi City are supplied by the high-lying Lantan Reservoir (蘭潭水庫) on the east side of the city toward lower areas on the west side. Given that Chiayi is built on hilly land about 100m above sea level and considering its geological composition of red soil and gravel beds, it is not an area in which floods should easily occur.

The main cause of the floods is connected to the rising property prices over the past decade. Before development, most of the land was hilly terrain that effectively drained and held back floods. The hinterland around Chiayi Park and the Chiayi Botanical Garden performed a similar function. However, almost all of these hills have been developed into luxury homes and non-agricultural village estates for the rich. These commercial developments are paved with impermeable surfaces.

Consequently, even Chiayi University’s Lantan campus is awash with mud. When rain fell on Fenci Lake (奮起湖) and the upper reaches of the Bajhang River (八掌溪) 20 years ago, it took about eight hours to reach the south side of Chiayi City 40km away. Now it takes little more than two hours to arrive.
The housing bubble is driving ever expanding development of hills and mountains near cities, a process that began in the 1990s after the first housing bubble. The author notes that the flooding is also linked to the greater power of storms and rising seas driven by humans heating the earth, an outcome of developmentalist mentalities everywhere. The rapidity with water from the hills now reaches the sea, thanks to construction-industrial state concreting of so many of Taiwan's rivers, was a major cause of the massive flooding in southern Pingtung after Morakot.

This constant development is laced with bitter irony for the island's ordinary people. Another TT commentator noted this week:
However, not long ago, the Ministry of Justice released data comparing housing prices and incomes. The comparison allows observers to estimate how affordable housing is. The ministry’s data ranked Taipei and New Taipei City first and third in the world, with housing price to annual income ratios of 15.01 and 12.67 respectively. The loan burden was 63 percent and 53 percent respectively, resulting from the government allowing the commercialization of housing.

The public housing that the administration promoted in the past was built at below-market costs, but it was common knowledge that once the properties were sold on to future buyers, their prices would be more equivalent to the going market rate.

This was undoubtedly because the government helped the public drive up housing prices, which was why the public housing policy failed and was called “lotto housing.”


The affordable housing policy that the government started pushing in 2010 might sound novel and original in name, but it is not very different from the old public housing policy. It aims to cheaply sell land to developers who stand to make a profit on construction work.
The writer observes that this development proceeds apace, despite the fact that the cities are filled with empty homes. This is not difficult to explain: subsidies for construction and land development make it so lucrative that a developer need merely fill half the homes in a large project to break even.

The policy the government has selected to bring down housing prices is to build more housing. Who benefits? People who build homes and develop land, of course. There are many policies the government might choose, such as subsidizing rents, direct subsidies to workers to pay for housing, or buying empty residences and renting them. But none of these policies benefits the construction-industrial state that runs Taiwan because they do not result in new land being "developed" or new buildings being thrown up.

The writer's main point is simple: public housing should be for rent only. If you make it sellable, people will simply buy it at the below market price it is offered, and then sell it at the market price, realizing a quick profit. Boom! No wonder they say the lucky recipients of the right to buy public housing have hit the lottery! Thus, public housing simply becomes another speculator's tool helping to keep market prices high and the price of homes out of reach of ordinary people. The only reason people can survive is because rents remain astoundingly low; not many places where you can pay $300 US a month rent on a home that might sell for $500,000 US. The vast number of empty buildings paradoxically keeps rent low. If they ever rise, there'll be blood in the streets...

2012 piece commented on the government's intimate relation with construction firms in the public housing market:
Bidding for the government’s affordable housing project is finished and “lottery-style” public housing will be built next to the A7 station on the future airport MRT line. However, the Housing Act (住宅法) passed late last year does not define “social housing.” It states only that 10 percent of new social housing must be reserved for disadvantaged groups. The government shirks all responsibility for the project, which will be a BOT project favoring construction companies. Housing prices will be announced on a district-by-district basis so pricing is neither transparent nor based on real market prices.
That writer also noted that other countries in the region social housing provision exceeds Taiwan's.

Destroying the environment? Consuming the future of the nation's workers? Yes, and taking a wrecking ball to justice. A commentary in the Taipei Times pointed out:
The reason the corruption case involving former Taoyuan County deputy commissioner Yeh Shih-wen (葉世文) has caused such alarm is that Yeh was also for a long period in charge of the Construction and Planning Administration. In this position, he passed countless urban planning and renewal projects, as well as land zoning changes for non-urban areas, many of which would have involved forced land expropriation.

Past land expropriation appeals have been mere formalities, mostly for show, so if the Urban Planning Commission has passed a motion, the subsequent land expropriation is practically guaranteed. A case in point is the verdict handed down by the Greater Taichung High Administrative Court on the Dapu Borough (大埔) demolitions in Miaoli County, the appeals for which were cursory at best, taking on average little more than five minutes each to go through.

It has been many years since martial law was lifted, yet the government has not changed in terms of its excessive use of land expropriation. If anything, things have become worse in the past few years. For example, in the period up until late December 2012, the government completed the expropriation of 95 zones, involving about 7,672 hectares.
The mere formality aspect of appeals processes is common whenever the big money touches on an aspect of Taiwan life, from land development to ECFA and the services pact, whose KMT-led "review" was originally declared over before it had begun.
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Tommy said...

Same thing is happening here. In Hong Kong, that pointless appeal process is called "public consultation." A slightly different beast with less of a ring of justice, but the same effect.

TaiwanJunkie said...

ultimately all housing bubble are nonsustainable.

especially when market value has significantly gone beyond rent, this is one of the major criteria for bubble definition and impending implosion.

advice to all young Taiwanese, just keep renting for now, save away until the implosion, it is not a question of if, but a question of when.

Anonymous said...

The rent isn't cheap anywhere relatively convenient - look to pay over $1000US for a small concrete box in a newish building in Hsinchu. Which is fine if the company pays but not so manageable for local salary levels. Also, the building will likely be poorly constructed and poorly managed. The upside is that you have few neighbours.

Mike Fagan said...

"...ultimately all housing bubble are nonsustainable."

That's a tautology, but the more I think about it, the more I think the concept of "bubble" is itself ill-defined almost to the point of tautology.

"...especially when market value has significantly gone beyond rent, this is one of the major criteria for bubble definition and impending implosion."

But is it? That condition was met by the Australian and Canadian house markets in 2005 (prices well beyond rents), lots of people cried "bubble" and yet... no collapse; house prices in both countries continued to rise. Prices in Australia are now 40 index points above where they were in 2005, and prices in Canada are now 60 points above where they were in 2005.

Here is the data - the graph is interactive so you can choose which data sets to compare.

You can point to the relatively large number of confirmatory cases against the small number of contrary cases, but that just means the idea of a bubble is a non-falsifiable hypothesis. All you've got is some correlations, that's it. Which in turn means that your advice to young Taiwanese to hold off buying is basically only a little better than astrology.

Michael Turton said...

bubble" and yet... no collapse; house prices in both countries continued to rise

Just because it doesn't collapse doesn't mean it isn't a bubble.

You know, there's a vast scholarly literature on this in economics.

Mike Fagan said...

Well if a "bubble" can just go on and on for decades or more, it's not clear that it's even a useful concept distinct from long-term price movements. You might as well declare that all price increases are unsustainable. Well sure, but so what?

TaiwanJunkie said...

US market hit max valuation in 2003, after that, it marched into bubble territory back in 2004. But it kept climbing. It didn't pop until late 2008.

Those that waited to purchase from 2009 to 2012 made out like bandits.

Now the US market is back up in valuation, but not in bubble range. There's numerous sites online dedicated to tracking valuation of real estate, look into it.

As for the $1000US for rent in Hsinchu, how big is the concrete box? How much does the concrete box sell for on the open market? More data please.

Less than 500 sqft apartments in Danshui is going for over $450 per sqft. Yet average GDP per capita is barely over $20k. You do the math on that one and tell me that is tautology.

Mike Fagan said...

TaiwanJunkie: You misunderstand. I am not disputing the phenomenon of sharp price movements or the possibility of profiting from them. What I am saying is that the idea of "bubbles" is too vague to be scientifically meaningful since it can apparently be used to describe any price movement lasting a year or two to several decades.

TaiwanJunkie said...


so we'll change the word "bubble" to dramatic over-valuation completely out of line compared to local rental cost and income.

Mike Fagan said...

You still don't get it.

How is "over-valuation" to be defined, if not by post-hoc reference to a collapse in the price? You can't have the comparison to local rents and incomes because as I have already pointed out there is more than one falsifying case even just within the last decade.

Unless the definition of "bubble" is tied to a prediction of a collapse within a reasonably short span of time, then it's not clear that we're talking about anything logically distinct from long-term price movements caused by other factors.

Anonymous said...

Land Scandal Week continues by swallowing up the city council chief and KMT mayoral candidate in Keelung:

TaiwanJunkie said...

valuation is defined by rent and income. if the valuation is not sustained by rent and income, two things would happen eventually.

either a collapse in pricing, aka a value correction.

or monetary inflation to bring the valuation in line.

ultimately the general public and most governments prefer the latter, because it disguise the actual "bubble bursting" and keep up with the appearance that somehow we are special and immune from the bubble effect. But all it is is a slow deflation matched by accelerated price inflation.

but that latter scenario doesn't mean there's no over-valuation.

taipeir said...

The rent for a 3bdroom apartment in Taipei city is anything from 8000 to 2500 USD/mth . In new Taipei city it can be a bit cheaper depending on the state of the building and location. Rent isn't that cheap in North Taiwan, 30,000 NTD would be a lot of money for the average family/couple in Taipei, but it's a lot cheaper than buying in general. You don't get much for your money, some will say that's the same in all Asian doesn't make one feel any better about it though.