Don’t Miss the Chance to Repeal Real Estate Regulations

Among the many stories people tell in comparing politicians, there is one that goes like this: “If you go to Yeouido, there are at least 500 people who believe that if they throw their hat in the ring, they are certain to be elected president.” It is a remark aimed at politicians who, without giving any thought to reality or to their own circumstances, become trapped in their own thinking and misjudge the situation. But an even more serious delusion may be the belief that they can manage the market as they wish.

The delusion that markets and the economy can be managed in whatever direction politicians want, and to whatever extent they want, is found across all times and places. If one looks into the history of economic thought, one finds a persistent history, from antiquity through the Middle Ages and into the early modern era, of banning the lending of money at interest. Interest was turned into a so-called “public enemy” and prohibited for all sorts of reasons. The history of economic thought also shows that many people criticized these absurd justifications for banning interest and worked to repeal such measures. Although no formal ban on interest exists today, negative perceptions of interest still remain. One example is the Interest Limitation Act, which prohibits “usurious” interest rates above a certain percentage. The frequent criticism that banks make money through an “interest business” and should give back more to society can also be seen as an extension of this negative perception of interest.

In Korea today, what has become a “public enemy” comparable to interest is, without question, real estate. And the belief that the real estate market can be managed is no different from the behavior politicians have displayed since ancient times. During the previous Moon Jae-in administration, nearly thirty rounds of real estate regulatory measures were announced. Of course, the result, like the ban on interest, ended in “government failure.” We experienced both real estate prices and jeonse and monthly rents soaring without limit.

History shows that it is rare for politicians to free themselves from the delusion that they can manage and control markets in the direction they desire, as can be seen from how long it took for the ban on interest to be officially abolished. Yet even if they do escape that delusion, another obstacle awaits when it comes to putting that realization into practice. In a democratic system, politicians cannot help but be conscious of the direction of public opinion and the preferences of voters. Still, there is also a saying worth heeding: if a politician is simply dragged along by public opinion and vote calculations, he is merely a political operator, whereas truly great politics leads people in the right direction.

In this respect, a recent remark by Ko Min-jung, a Supreme Council member of the Democratic Party, criticizing the Moon Jae-in administration’s real estate policy, came as a refreshing shock. Ko Min-jung, who took part in the Moon administration as a key figure, publicly proposed abolishing the Comprehensive Real Estate Holding Tax and criticized the Moon administration’s housing policy, saying, “There were many factors behind the failure to win re-election as the governing party, but real estate was certainly a major one... To dismiss the desire to own a home as mere greed was a serious mistake.” Whether this reflects an awakening from the kind of delusion politicians often fall into or simply a revision of electoral strategy, it is hard not to view her criticism, reflection, and insistence that the policies of the government she herself participated in must be corrected as a remarkable display of political courage.

Meanwhile, the current government and ruling party, which had pledged to reform real estate taxes such as the Comprehensive Real Estate Holding Tax but until now have taken little concrete action while merely watching public opinion, have effectively been dealt a heavy blow. Last year as well, they promised to roll back the so-called “three-piece regulatory set for multi-homeowners”—higher acquisition tax, capital gains tax, and Comprehensive Real Estate Holding Tax burdens—but the only thing that was actually implemented was an easing of the heavier Comprehensive Real Estate Holding Tax burden. Beyond that, nothing has changed, and there has not even been much sign of serious effort to change anything. In this situation, with a Supreme Council member of the opposition party calling for the abolition of the Comprehensive Real Estate Holding Tax, and the opposition floor leader also mentioning the “abolition of the Comprehensive Real Estate Holding Tax for owner-occupied single-home households,” the ruling side has been left looking rather awkward. Fortunately, it is said that the government, following its review of abolishing the Comprehensive Real Estate Holding Tax, is also pushing a plan to substantially ease the heavier capital gains tax and acquisition tax burdens on multi-homeowners.

Although opinions still differ on the details, for the first time in a while the government and ruling party and the opposition seem to be aligned in the broad direction of abolishing or easing punitive real estate taxes. It will not be easy for such a favorable environment to arise again for eliminating the punitive taxes and various regulations that have tightly bound the real estate market. I hope this opportunity is not missed.

Hyukchul Kwon, Director, Free Market Institute

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Original title: 부동산 규제 철폐할 기회를 놓치지 않기를

Author: Hyeok-cheol Kwon

Date: 2024-06-12

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=column&pn=2&idx=26713