When real estate prices in Taiwan are normal, every year they go up at a rate of 10 to 20%. But in each of the decades of the 1960's, 1970's, and 1980's, there has been a leap where prices doubled to quadrupled; each of these periods lasted one or two years.

The 1960's were a key watershed period in Taiwan's development: before then, Taiwan was mainly agricultural, and fluctuations of land prices were small. Thereafter, industry began to develop, and income from non-agricultural pursuits surpassed that from agricultural pursuits for the first time in 1964. Industry took off, laborers began to crowd into the cities, and urban population concentrations took shape. In addition, the global economy was very prosperous at that time. In 1969, the first abnormal price rise in land prices since the government came to Taiwan occurred. Partial factors, such as changing Taipei's status to a special municipality in 1968, brought a rise in price in those areas included in Taipei's territory.

Prelude: But faced with this first land price aberration, "the government did not adopt any clear, concrete policy to restrain it," says Wu Chiachang, a staff person at the Council for Economic Planning and Development, "because they had had no experience with this type of thing, and they only adopted a few administrative measures like adjusting assessed values."

What's interesting is that raising assessments to raise value-added taxes is intended to reduce speculation and restrain skyrocketing land prices. However, because past increases in assessments had brought inflation, at that time the scale of the increase in assessments was actually smaller than it had been in the past, in order to avoid stimulating inflation, thus adding fuel to the land price fire.

From today's perspective, many believe that at the time assessments should have been raised, but weren't. But Wu Chia-chang argues that the environment in those days gave the government different things to consider from today, and that despite the fluctuation, land prices remained low; compared with later incidents, that was only "chamber music, not a full scale symphony."

In the 1970's, there were two incidences of land price shocks, in 1974 and 1979. It was especially serious in 1979, because after the second energy crisis, there was a business recession, and capital flowed into the real estate market in a big way. Added to this were increases in overall prices, and everyone anticipated there would be inflation, and rushed into property as a hedge. Even more, financial conglomerates took the opportunity to speculate, and prices rose sharply.

Between Speculation and Pressure: On this occasion the government took more forceful action. Tseng Teh-fu, a staff person at the Bureau of Land Management in the Ministry of the Interior, recalls that capital controls, increased assessments, and other measures was proposed, but the only truly harsh medicine prescribed were provisions to tax or forcibly buy empty land if construction was not started within a certain time limit.

After an island-wide government investigation in April 1980, over 50,000 lots were listed as falling under the construction restriction stipulations, and the original two-to three-year time limit was reduced to one year. Those who had begun construction by the deadline would have the land taxed or forcibly purchased at the (low) assessed value. The program was to be implemented in five phases. After the first full year of implementation, "more than 100 lots had been handled under the provisions," says Tseng Teh-fu, looking over statistics from that era. The policy definitely had some function in restraining speculation and price rises.

Yet, though the measures did hit some land speculators, even more landowners came up with loopholes. Some dug a few holes, stacked up a few bricks, and drove a few steel rods into their property to show they had begun work; others took land on which a skyscraper could be built and threw up a perfunctory little one or two story house, which they neither rented nor used. . . .

One year later, housing prices had softened again, and under demands from the public, the policy was terminated; of the original five phases, only one was actually implemented.

Although most scholars approve of the construction time limit measure, if you ask how much of the fall of land prices can be ascribed to it, the answer is usually, "it's hard to say." Wu Chiachang contends that periods of fluctuation in real estate prices in Taiwan have usually been periods of prosperity in the world economy: If the economy is weak, and prices are falling, land prices cannot make any great gains. He compares real estate prices to the crest of a wave that keeps rising; when it reaches its peak it will naturally stop and adjust. When it gets to the nadir, it will begin moving up to another peak.

Too Many Fuses All at Once: The next crest was reached from 1987 to 1989, though you can't really mention the scope of previous rises in the same breath as this one, the time frame was longer, and the response in society was more intense.

According to the 1990 Republic of China economic yearbook, prices at that time were two to four times higher than they were in June 1987. Over the same period, remuneration in the manufacturing sector rose only 10% annually. Calculating from the price of a new house in 1986, it was about six times the annual income of a family at that time; in 1987 this increased to 9.6 times; and in 1988 the price of a dwelling exploded to 19.3 times the annual income of a family.

The causes of the previous burst in real estate prices--the oil crisis and inflation--were quiet this time around. What replaced them was a sideeffect of Taiwan being "up to its ankles in money." "External trade had shown a large surplus for several years running, and there was a great deal of idle capital in private hands; moreover the NT dollar was appreciating, and speculative foreign money poured in, add to this that the policy of 'returning price increases to the general public' had not been effectively implemented over the long run, and land became a highly profitable investment," says Hsieh Chao-yi, an associate professor in the graduate program in urban planning at Chung-hsing University. This time a number of fuses all burned to the powderkeg at the same time.

In February 1989, the Ministry of Finance adopted a policy-oriented tightening of housing loans, in hopes this would calm housing prices. In the second half of the year, housing prices began to moderate, but prices in Taipei City were still up about 30% over 1988, with those in Taipei County up 20-50%. There were still continuing calls from society for the "second land reform." Collection of the land sales income tax, the empty lot construction time limit, and other traditional measures were also advised. "The most important thing is that these policies must be thoroughly implemented," says Hsieh Chao-yi, because that's the only way to preempt the next wave of increases. If you rest your troops in peacetime, and only mobilize (pull out restrictive policies) when the war (the period of skyrocketing prices) comes, you'll always be a step behind!

[Picture Caption]

Tamsui is a prime example of an area swept by the latest land-price boom. (photo by Diago Chiu)