[Opinion] Real Estate Measures Are Not a Department Store-Style Solution

Housing policy is one of the most popular policy areas along with education policy. This is because all citizens are policy targets and face these issues in their daily lives. Therefore, everyone has their own opinions on this matter and independently judges and criticizes government policies. However, housing policy is considered a difficult field even among experienced economic officials. The reason housing policy is challenging for government authorities lies not only in its popularity but also in the unique characteristics of housing as a commodity and the diversity of the housing market. As policies try to respond to each of these diversities, they become complex and difficult.

Housing has a dual nature as both a consumer good and an investment asset. Housing is a consumer good that provides the space necessary for daily life. Demand for housing as a consumer good naturally correlates with population or household changes and is sensitive to income fluctuations. From this perspective alone, with a predicted population decline and a modest economic growth rate of around 2%, a trend of rising house prices is hard to expect. However, the problem is that housing is also an investment asset, and the housing market is divided into multiple submarkets by region and property type. Due to the quantitative easing policies sustained worldwide over several years, low interest rates have been solidified, and the money supply is overflowing. Money that cannot find suitable investment destinations is flowing into the housing market. This inflow is not into all housing but into certain regional housing markets that hold investment value.

When dealing with difficult issues, principles should be established on a broad scale and addressed step by step, but government policies so far show that the central government has approached the issue too microscopically. Looking at the press release of the so-called December 16 measures announced by the government at the end of last year, there are as many as 24 items of department-store-style measures, including high-priced housing loan regulations, strengthened comprehensive real estate tax, price ceiling systems for pre-sale prices, and actual transaction investigations. These policies are implemented in a mixed manner, and because they approach specific regions or properties too concretely, unexpected side effects have occurred in the market.

So, what is the effective way to carry out difficult housing policies? It is to clearly distinguish policies for consumer goods from those for investment assets. To sufficiently supply housing as a consumer good, the government must actively secure land for housing construction and provide rental housing for low-income groups. However, for housing as an investment asset, rather than responding to the market case by case, a broad approach is needed that sets strict principles and thoroughly implements them. First, the market should be managed transparently, and based on this, capital gains from all real estate transactions should be taxed without exception. The tax rate should be higher than that of earned income tax, and the progressivity should be adjusted more steeply. The tax rate on real estate capital gains, which are close to unearned income, should be higher than the tax rate on earned income that citizens have obtained through hard work, to gain economic and political legitimacy. The non-taxation of one household one house should also be drastically reduced. This system is designed to exempt tax on 'one house' to help form the middle class, but recognizing this exemption up to high-priced houses worth 900 million won is too generous considering the current reality where asset inequality is pointed out as the greatest unfair factor.

The market should be transparently managed to prevent false reporting through loopholes and illegal methods, and based on this, a high-rate progressive income tax should be imposed on capital gains. Once such a system is established, housing will shift from a 'low-risk high-return' investment asset to a 'high-risk low-return' investment asset, which will greatly contribute to stabilizing housing prices and improving distributional equity.

Park Sang-woo, Distinguished Professor, Graduate School of Engineering, Korea University

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