[Book Sip] Moon Jae-in Government Cheong Policy Chief "The Reason for Real Estate Policy Failure Is..."

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The author of the book is Kim Soo-hyun, the former Chief Presidential Secretary for Policy, who is mentioned as the architect of the Moon Jae-in administration's real estate policy. The author, who was pointed out as responsible for the surge in housing prices by civic groups, the media, experts, the People Power Party, and the Democratic Party, opens the text by acknowledging his responsibility. He reviews one by one why the Moon administration failed to control housing prices, what should have been done to curb them, and the reasons behind the price increases. He states, “Someone like me, who is being criticized by everyone, needs to speak first,” reflecting on the reasons for the failure of the Moon administration's real estate policy, contemplating Korea’s real estate issues, and revealing alternatives. The author emphasizes, “If the Moon administration’s real estate policy failed, we must record and discuss why it happened and how to prevent its recurrence. We must also properly scrutinize the criticisms from many who claimed their approaches would work. Without reflection on the Moon administration, we cannot properly respond to situations that may recur in the future.”

The author, unsure if he is qualified, is mentioned as the person responsible or the architect of the Moon administration’s real estate policy. Civic groups, experts, the media, the People Power Party, and the Democratic Party all point to him as one of the main culprits behind the housing price surge. Civic groups criticize him for not raising taxes properly, while conservative media accuse him of leading a tax bomb. He is also blamed for raising housing prices through the expansion of the rental registration system. p.9~10

It is clear that the real estate market conditions faced by the Moon administration were very difficult. It was a time when global liquidity was expanding, and supply, which had decreased during the Lee Myung-bak and Park Geun-hye administrations, became a problem. Moreover, with COVID-19 prompting fiscal expansion, an unprecedented surge in asset markets occurred despite concerns about an economic crisis. Speculative demand poured into anything that could generate money?stocks, real estate, coins, luxury goods. Low interest rates and excessive liquidity caused a surge in housing demand, but due to supply delays, housing supply could not keep up in time. p.49

However, this means these were given conditions, not that the housing price surge was inevitable. Unfortunately, the Moon administration could have done better and should have done better. Above all, it is heartbreaking that housing prices, which had been barely holding steady, surged almost defenselessly from the second half of 2020 to the first half of 2021. p.61

In this situation, household debt in Korea increased faster than in any other country in the world. The special circumstances of COVID-19 naturally had an impact, but the effect of rising housing prices was very significant. Although the effectiveness was limited by the jeonse system and family support, stronger loan restrictions should have been imposed. Under conditions where raising interest rates broadly was difficult, DSR should have been applied more strictly and earlier, especially monitoring and blocking jeonse loans, credit loans, and modified real estate corporate loans. The government hesitated to actively suppress financing, citing reasons such as the lack of other sectors for financial institutions to allocate funds, the necessity of jeonse loans for ordinary people, and political demands for loan expansion. p.63

Nevertheless, the Moon administration bears significant responsibility for failing to quell concerns about supply shortages early. Although the supply shortage argument contained many political framing elements aimed at politicizing government policy failures, it is true that public anxiety lingered for too long. In this regard, there is regret that the 3rd New Town decision and the expansion plans for the metropolitan transportation network of the 1st and 2nd New Towns were not planned and executed sooner. p.65

The rental business system is another example of policy confusion. At the end of 2017, the government announced a recommendation to expand and strengthen registered rental housing by private rental business operators, but within a year, it was abolished and reversed. If the initial situation assessment was wrong or subsequent developments problematic, it was natural to correct it. However, the bigger problem was the prolonged confusion over reduction, abolition, and retention. This reflected the social controversy over multi-homeowners. p.68

The core cause of the housing price surge was excess money, but energy was wasted on ideological disputes over supply measures that were difficult to implement immediately due to time lags and tax increases targeting wealthy homeowners. Considering the global phenomenon of housing financialization, more fundamental and swift responses were needed in the financial sector, but the government and the Bank of Korea made slow and insensitive decisions to defend the economy and maintain broad financial stability. Although done in the name of protecting ordinary people, the result was that ordinary people suffered the most. p.72

Until I became involved in real estate policy, I differed from so-called reformists on this point. Deputy Prime Minister Kim Dong-yeon’s statement (“Holding tax is not a tax to curb housing prices,” National Assembly response, August 27, 2018) aligned with my view. How can we explain that the U.S., which has the highest effective holding tax rate in the world, paradoxically experienced the largest housing price increases globally? Is it because of liquidity in that country and low taxes here? p.144

Ultimately, holding taxes must gradually increase the burden step by step while improving tax fairness according to the type and location of real estate such as apartments, detached houses, commercial buildings, and land. Although the public was angry and the government tried to raise taxes only on high-priced and multi-homeowners, the government and ruling party wavered repeatedly from late 2019 to mid-2021 due to difficulties in setting the criteria for high-priced properties. When the comprehensive real estate tax was strengthened, more than half of Seoul apartments became subject to it, and the government and Democratic Party hastily tried to lower taxes again in panic. p.145

Korea’s real estate taxes are not weak compared to any other country in the world, at least nominally. In fact, there are many strong elements. Nevertheless, actual tax burdens are often considered low or unfair, and everyone is dissatisfied. Both those who argue for higher taxes through tax reform and high-priced, multi-homeowners who say taxes have risen too much have great dissatisfaction with the government. In this situation, taxes have fluctuated wildly depending on the real estate market. Holding tax, capital gains tax, and acquisition tax have alternated between strict and lenient according to economic conditions. p.151

It is clear that taxes are an important tool in real estate policy, but we must acknowledge they are not万能 (万能 means 'all-powerful' or 'panacea'). Trying to appease people angry about housing prices by continuously raising someone’s taxes is mere populism. It is not sustainable. If we properly focus on the causes of rising housing prices, taxes are already a secondary area in Korea. The core was to block the link where excess liquidity flows into asset markets through the financial system, but that area was left in a blind spot of surveillance while energy was wasted on the long-standing tax debate. p.154

The more jeonse deposit loans increase, paradoxically, the higher housing prices rise. As jeonse tenants increase their purchasing power through loans, landlords can raise jeonse deposits and use them for gap investments. It is a dilemma. The expansion of jeonse loans to help low-income or middle-class households without homes becomes a catalyst for housing price surges. p.169

Ultimately, the ‘good intentions’ or ‘naive intentions’ of the rental business system failed. Especially continuing to include apartments in the rental registration target, despite the condition that the official price be below 600 million won, was problematic given that official prices do not keep pace with rising market prices. p.187

Since the administration has changed, the Moon administration’s real estate policy is not something to be ignored. Judging by the current Yoon Suk-yeol administration’s behavior, if housing prices recover soon and demand exceeds supply, the same or worse problems will inevitably recur. We must break away from romanticism and demagoguery in real estate policy and establish Korean principles regarding the roles of the market and government. That is what we must learn from the Moon administration’s failure. p.272

Real Estate and Politics | Written by Kim Soo-hyun | May of Spring | 292 pages | 18,000 KRW