"Clear Limits of Multi-Homeowner Regulation Through Property Holding Tax" Candid Real Estate Criticism at Hakhyun School Forum

At SIES Monthly Forum, Real Estate Policy Declared a 'Failure'
"Limitations of Using Current Taxes for Economic Adjustment"

[Image source=Yonhap News]

[Asia Economy Reporters Kim Hyunjung (Sejong), Jang Sehee] A claim that the current government's real estate policy is a 'failure' has emerged from the Hakhyun School Forum, a gathering of progressive scholars with a distribution-centered economic philosophy. As the government's real estate policy fails to gain support not only from conservative scholars but also from the progressive camp, there is an assessment that related policies are retreating. Notably, it is also noteworthy that the Hakhyun School, which forms the foundation of the Moon Jae-in administration's economic philosophy, has criticized economic policy and appears to have accepted the faults in real estate policy as well.

According to the Seoul Institute of Social Economy (SIES) on the 12th, Lee Seonhwa, a research fellow at the National Assembly Future Institute, presented a report titled "Understanding the Real Estate Market and Issues in Holding Tax Reform" at last month's SIES monthly forum, criticizing the current government's direction on holding tax reform. Lee emphasized, "There are clear limitations to using current taxes, which require social consensus, as a means of economic adjustment," adding, "It is a policy that should be pursued steadily and gradually in the early stages of an administration." He further pointed out, "Balloon effects have appeared due to the expansion of special provisions for rental business operators, and targeted taxation methods such as regulations on multi-homeowners that ignore tax equity have low political sustainability."

He also argued that Korea's holding tax system, which has extremely differentiated tax rates depending on the type of real estate or ownership structure, violates efficiency and equity. He stated, "Low tax rates on land and high tax rates on housing buildings distort resource allocation and suppress housing supply," adding, "The tax burden on real estate holdings worth 3 billion KRW (market price basis) is about 0.12% for separately aggregated land, while it approaches 1.0% for two-homeowners (in non-regulated areas), violating horizontal equity as well." He added, "If only housing is targeted, tax progressivity increases, but including landowners makes it difficult to see the comprehensive real estate tax as functioning like a quasi-wealth tax."

As mid- to long-term directions for holding tax reform, he cited ▲gradual increases ▲improvement of real estate price evaluation systems (to ensure fairness) ▲high tax rates on land and low tax rates on buildings. He explained, "Along with a gradual increase in the effective tax rate relative to asset prices, arbitrary distinctions between land types should be eliminated, and horizontal equity, where the same tax is imposed for the same ability, should be realized," adding, "Low tax rates on land due to arbitrary land type distinctions should be excluded, and differential tax rates should be applied to residential land and buildings for housing." He also pointed out, "It is difficult to expect policy effects from the practice of hastily creating market stabilization measures depending on economic conditions," warning, "Rather, it sends a reverse signal to the market that tax policy effectiveness is low, risking stimulation of investment demand." Regarding the government's targeted taxation policy since 2018, he criticized, "It may have been an unavoidable choice to curb overheating in the housing market, but it does not meet good tax policy criteria."

Criticism from the Hakhyun School also targeted the current government's monetary expansion. Won Seungyeon, a professor in the Department of Economics at Myongji University and a member of the Hakhyun School, evaluated the government's fiscal omnipotence as 'fragmentary' in an interview with Asia Economy, emphasizing, "Since the side effects are significant, future-oriented and sustainable policies must be created." He added, "Providing cash only temporarily increases income and cannot secure policy sustainability." Professor Won also stressed, "As tax policies such as property tax and comprehensive real estate tax are mixed, people even think policies will be reversed," adding, "The comprehensive real estate tax and others have also seen a retreat in tax policy."