The photograph was taken in 1931. Scott says that the building was built by the Taiwan Sugar Corporation (of Japan). That style of architecture is very similar to other buildings on YMS that were built in the early 1920's by the Taiwan Sugar Corporation. The TSC was one of the Japanese monopolies (Other monopolies were lumber, rice, metals and coal). The Japanese maintained full control of all those industries during the Japanese era on Taiwan.
A few years ago I posted these two photos that Stev Pitchford took of the Hostel #1 building when it was being used by the American military. There was a lot more vegetation around the building by then but you can easily tell that the building looked basically the same as it did thirty years earlier.
Also back in 2008, I received additional information from George, who was kind enough to provide some links that show the building as it exists today:
The Grass Mountain Hostel #1 is now Taipei Teachers' In-Service Education Center.
I searched the web in English but found very little info. The two best blogs in Chinese I found are the following:
The above blog mentions the facility was used as dormitories by US military personnel until 1969. The facility then was used by the Park Authority until 1981 when it became Taipei Teachers' In-service Education Center.
More photos including International Hotel and Chiang Ka- Sheik's summer villa: