Many believe that if you don't purchase a house, you'll be unable to rent one in your old age, leading to homelessness. This article aims to debunk this fear-mongering tactic often used by the real estate industry. We'll analyze the situation using numbers, financial benefits, and cold, hard facts, leaving out emotional arguments and focusing on a pragmatic approach.
The Supply and Demand of Housing in Taiwan
Housing Supply Exceeds Demand
Government statistics indicate a robust housing supply in Taiwan. Between 2020 and 2022, an average of over 160,000 construction permits were issued annually. This contradicts the common belief that Taiwan's limited land leads to a shrinking housing supply.
Declining Birth Rates and Population Growth
Conversely, Taiwan's birth rate is steadily declining. The birth rate in 2020 was 165,000, but by 2023, it had plummeted to 134,000. Taiwan has experienced continuous population decline and negative population growth, particularly in the younger workforce.
Surplus of Homes
Analyzing the data, Taiwan's annual housing supply exceeds demand by approximately 15,000 units. Over 30 years, this would result in 450,000 vacant homes. Considering this surplus and the aging population, landlords will likely need to rent to senior citizens in the future.
Debunking the Household Increase Argument
Slower Household Growth
Some real estate professionals argue that despite population decline, household numbers are increasing, thus sustaining housing demand. However, statistics show that household growth has slowed significantly since 2013.
Household Growth vs. Housing Supply
Even with optimistic projections, the annual increase in households doesn't keep pace with the housing supply. This leads to an increasing number of unoccupied homes over time. The argument that household growth will offset the declining population is not substantiated by the data.
The Current State of Vacant Homes in Taiwan
High Vacancy Rate
Currently, Taiwan has a concerningly high vacancy rate. In the second half of 2024, approximately 860,000 homes were vacant, representing 9.32% of all housing units. This indicates a significant oversupply of housing.
Vacant Homes Concentrated in Urban Areas
Contrary to popular belief, most vacant homes are not in rural areas but in the metropolitan regions. Studies show that two-thirds of vacant homes are located in the six major cities, the "egg yolk" districts, due to ineffective vacancy and property taxes, encouraging owners to leave properties unoccupied.
Conclusion: Over Supply in Housing
The current vacancy rate is high, and it is projected to become even higher in the future. With declining birth rates and household growth, the demand is not there to meet housing supply, so future landlords will likely have to rent homes out to older people.
Addressing the Fear of Homelessness in Old Age
Low Probability of Homelessness
The fear of becoming homeless in old age is a common concern. However, the statistics paint a different picture. There are currently over 4.5 million people over 65 in Taiwan. The recorded number of homeless people is between 2,500 and 3,600, of which many are in shelters.
Likelihood of Homelessness
Even with high estimates, the probability of a person over 65 becoming homeless in Taiwan is exceptionally low, at just 0.11%. This suggests that the fear of widespread elderly homelessness is largely unfounded.
Renting vs. Buying: A Financial Comparison
The Myth of Paying Yourself
Many believe that buying a home is better than renting because you're "paying yourself." However, a closer look reveals that homeowners still pay "rent" in the form of mortgage interest, property taxes, and maintenance costs.
Calculating the True Cost
Let's consider a property priced at NT$12 million. The monthly rent would be around NT$28,000. If bought with an 80% mortgage, the monthly interest payment alone could be NT$18,000. Factoring in management fees, the cost difference between renting and buying becomes marginal.
The Opportunity Cost of Down Payment
Furthermore, the down payment on a house represents a significant opportunity cost. Investing that money, even conservatively, could generate monthly income that offsets rental expenses. Buying a house locks up a large sum of capital.
Example of Investing in ETFs
The risk in investing in ETFs is less than the risk involved in investing in real estate. A financial advisor might tell you that if you buy ETFs every month and hold onto them, on average you will make 8%-10% back on your investment. If a down payment of NT$2.4 million was used to buy ETFs, and you only make 4%, you could earn around NT$8,000 a month.
Addressing Concerns About Rising Rents
Mortgage Rates Can Increase
While rent increases are a valid concern, mortgage rates can also fluctuate. With current pressures for interest rate hikes in Taiwan, the financial burden of homeownership can increase significantly, potentially negating the perceived benefits over renting.
Factoring in Depreciation
Over the span of 30 years, there is also an aspect of depreciation involved. As one rents, there are opportunities for investing in other things. However, those with a mortgage are forced to pay it off. One can rent for 20 years for the price of owning property for 30 years, due to interest.
The Stress of Home Ownership
Home ownership can become extremely stressful when paying down the mortgage, not including when the interest rate is extremely high.
Freedom from Financial Stress
Renting on the other hand provides opportunities to learn how to invest. In the event that rent is raised, there is a great deal of flexibility to move elsewhere.
Comparing Risks
Consider a scenario where a NT$12 million property depreciates by just 1%. That's a loss of NT$120,000, equivalent to 14.5 years of rent increases at a rate of 2.45% per year. The risks associated with property depreciation often outweigh the concerns of rent increases. In the event of the property being sold, it takes much more time than simply selling stock.
Conclusion: Renting in Old Age is OK
There is no easy answer when it comes to the rent vs. buy question. There are different advantages and disadvantages that need to be considered. The current over supply of houses means renting in old age will not be a significant problem.
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