Flipping the bus

A market generally has the knack of finding out who holds real power in a government. It has to, in order not to bark up the wrong tree. The real estate market focused on Kim Soo-hyun, a urban planning professor recruited as the senior secretary for social affairs for President Moon Jae-in. In a kind of welcome for Kim, home prices in the posh neighborhoods of southern Seoul shot up in early May. Kim was the architect of a comprehensive property tax on the aggregate value of real estate assets held by a single person under former liberal President Roh Moo-hyun, which ended up provoking a spike in apartment prices in Gangnam — the opposite of its intention.

The real estate market bet that Kim would resort once more to higher taxes and heavier regulation to cool prices again instead of modifying the supply. Higher taxes would send up home prices, as they did a decade ago. Kim would be spearheading an urban redevelopment plan at a cost of 50 trillion won ($44 billion) over the next five years. In short, the real estate boom and bust seen during Roh’s term could be replayed.

After Kim took office, prices began to jump, starting with apartments being redeveloped in Gangnam. Whispers said it was the best time to buy a home. The mood in the real estate market, which had been jittery about oversupplies until early this year, dramatically changed. The market largely ignored Kim Hyun-mee, minister of land, infrastructure and transport, when she declared a crackdown on speculation in her inaugural speech in June, promising to show that “apartments are homes, not means of wealth.”

The senior presidential secretary came forward as the market moved in a direction opposite of what the government wanted. He championed a new set of government measures announced on Aug. 2 that used all possible regulations to throw cold water on overheated activity in the housing market. Kim is dubbed the “king” secretary because of the trust he enjoys from the president.

The controversial left-leaning policies of the administration — a real estate crackdown, the abandoning of nuclear power, actions to combat fine dust pollution — were Kim’s work. He explained the policy of phasing out of nuclear power and suspending construction of new reactors to the press, while requesting anonymity because of the awkwardness of a secretary in charge of social affairs commenting on an environment and energy policy.

But he needn’t shy away from the real estate issue as it is his field. Kim draws his theory from American economist Henry George, who declared a century ago that “we must make land common property.” The economist gave birth to the concept of a single tax on land by arguing that the government should be funded from tax revenue on land more than labor because land is a gift from God and should not enrich a precious few.

Kim maintained unwavering conviction on the issue of real estate. Starting with involvement in a task force addressing discrepancies of wealth to the designing of the comprehensive property tax, he was closely involved in every action on real estate under the Roh administration. Before advising on property tax, he had suggested a new levy on the rich.

Kim believed it was unjust for the wealthy to make easy money out of real estate. He aspired to tax not only homes and other fixed assets like land and office buildings, but also assets like securities. His idea of taxing the rich, however, faced headwinds as it goes against capitalist principles and also could trigger capital flight or tax dodging.

Kim wanted to prove the longstanding belief — that Gangnam properties are unbeatable — wrong. “It is a wrong belief and irrational belief . . . and I had to fight against the unreasonableness all throughout the [Roh] administration,” he recalled in his memoir.

The Roh administration produced 17 sets of real estate measures, but failed to tame the market. Kim blamed abundant liquidity for the cause of that failure. Coincidentally, the Roh administration added 103 trillion won in domestic liquidity as land subsidies for urban modernization programs. The measures to tame property prices in Gangnam ended up refueling them.

Kim is taking on Gangnam property again. He is determined not to fail this time. He made the first menacing move and dropped a bombardment of regulations, proclaiming a war against not just speculators but against all profiteers. The onslaught has already had an immediate effect. Bids have crumbled and trade has come to a stop.

However, when a bus makes a sudden turn, passengers tip over. They struggle not to lose balance. If Kim really wants to triumph over the Gangnam real estate market, he must first draw lessons from the failure of the property tax. He must avoid making a sharp turn. He should go slowly and steadily so that he and the passengers can arrive at the destination safely.

JoongAng Ilbo, Aug. 10, Page 30

*The author is a columnist of the JoongAng Ilbo.

Yi Jung-jae