Tuesday, July 12, 2011

Impose Restrictions on the Sale of Public Housing

Impose Restrictions on the Sale of Public Housing
China Times editorial (Taipei, Taiwan, ROC)
A Translation
July 13, 2011

The Executive Yuan Council for Economic Planning recently proposed a draft law for contemporary housing. Its most distinctive feature has nothing to do with new government construction or low cost construction. It does not establish rules for surface rights in new construction. Instead, it imposes restrictions on buyers, specifying that contemporary housing may not be freely traded. This provision is being promoted as a national initiative. But public acceptance remains to be seen. We feel it is a step in the right direction. We consider it applicable to other forms of public housing, such as affordable housing.

The CEPD's draft law for contemporary housing currently applies to building sites near the Tucheng and Shanhsia MRT stations. Public land will be subject to a 70 year surface rights clause. Developers will transfer the land to a public trust.
The land will then be sold at 50 to 60% of the market price. Home buyers must have incomes below a certain level. They may not have any housing units in their name. Home buyers are not permitted to resell the units. If they do sell, they may only sell them back to the trustee. Or else they must sell the property to other qualified home buyers.

Consider the history of government housing. Buyers of government housing were allowed to sell their units after a specified number of years. This is the main reason government housing policy was unsustainable. The government obtained the land, built the housing, then sold it to the public at below market prices. Members of the public would then resell them at market prices to others. The result was private individuals profiting at public expense. Once the low cost housing units were sold, the government no longer possessed the means to provide low cost housing. All it could do was look for more land and build more housing. This approach was unfair. Worse, it rendered the policy for government housing unsustainable.

Therefore, the contemporary housing units provided by the Council for Economic Planning are subject to special restrictions. They may not be resold without restrictions. We approve. Only this will enable the government to retain the resources necessary for the construction of government housing. Only this will enable society to provide long term solutions to housing problems. The workings of the system however, must be simple and functional. They must not result in the creation of new bureaucracies. Sellers must be allowed to sell their units only to buyers who meet the requirements. One. Sellers lack information about prospective buyers. It is not within their power to conduct private evaluations. Two. More importantly, the provision affects the selling price. Resellers could profit from the resale of housing units. The profits would then end up in private hands. Therefore the government must remain the sole trustee of the housing units.

Also, how should the trustee determine the appropriate selling price for the original buyers of contemporary housing units? This has yet to be finalized. But it may be essential to the system's success or failure. A number of ways can be considered. If one's premise is that any appreciation should accrue to the government, then the units should be bought back at their original selling price. At most, one would add the interest, or account for inflation. But if one's premise is that the buyers and the government are sharing the upside profits as well as the downside risks, then the difference between the selling price and the original purchase price should be shared by the government and the original home buyer alike, according to a specified ratio. If however one is considering depreciation and the benefits derived from the housing unit's use, then the units should be bought back at a depreciated price. Regardless of which method is used, a repurchase price mechanism must be established and included as part of the contract.

The CEDP should establish a governmental or governmental trust repurchase mechanism for contemporary housing units. The government and the public agree. This is a fair, reasonable, and sustainable system. Therefore we have no reason not to make wider use of such a system, for affordable housing, young peoples housing, and other forms of government housing. Government housing sold at low prices to the public can be included in this system. For example, the government has officially contracted to build affordable housing near the Airport MRT station A7. The price will be set at 50 to 70% of the market price. Potential buyers are already rubbing their hands, noting that "get one and you're ahead of the game." Such practices, which enrich private individuals, are highly undesirable. The Ministry of Interior Construction and Planning Agency should establish mechanisms by which the government can buy back units, while increasing the proportion of rental housing.

Some people may criticize such a mechanism for limiting the resale of units, as a complete contradiction of free market principles. They may criticize it as socialist. But the construction of public housing by the government, using society's resources, then selling them at low prices to the economically disadvantaged, is inherently socialist. It matters not whether one refers to them as affordable housing, contemporary housing, or government housing. The government is attempting to solve the housing problem for the people. It is definitely not doing so merely to provide private individuals with windfall profits.

Many advanced nations have free market economies. But the government still intervenes in the housing market. It provides government housing for sale or for rent. The government's housing sales or lease provisions attempt to ensure fairness. They attempt to avoid or at least limit profiteering. The government housing system once lacked such restrictions. The result was that when the units appreciated, they enriched private individuals. Anyone allotted a low or medium priced government housing unit was virtually a lottery winner. This resulted in another kind of unfairness. Restrictions on the resale of government housing units
will not harm the free market. They will not deprive people of their property rights. The CEPD's restrictions on resale are entirely appropriate. Government housing policy was once unjust and unsustainable. This will change all that. The government should make government housing universal. It should swiftly incorporate affordable housing into the system. This will establish a sustainable new government housing system.

中時電子報 新聞
中國時報  2011.07.13









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