Demographic Structure, Business Fluctuations, Tax Shock and Housing Bubbles

Abstract

Taiwan’s housing supply continues to increase but the housing prices still remain high, which may lead to housing prices bubble. Therefore, this study intends to detect the housing bubble in the Taiwan housing market using variables from the demand side such as the purchasing power variables (dependency rate, house price-to-income ratio) and the purchasing cost variables (consumer price index and mortgage interest rate). By considering the external factors like economic growth and taxation, we use the regression model to explain the housing price bubble. The empirical results show that Taiwan has a significant price bubble before the taxation, and there is a significant downward trend after taxation. Second, the dependency rate and the housing price bubble has a negative relationship; the impact of house price-to-income ratio on housing price bubble is significantly positive. Moreover, the impact of consumer prices index on the housing price bubble is significantly negative; the impact of mortgage interest rate on the housing price bubble is not obvious. In addition, the impact of economic growth on the housing price bubble is not significant; the relationship between taxation and housing price bubble is significantly negative.