Unsafe at any speed
The author is a columnist of the JoongAng Ilbo.
Speed is essential with real estate policy. Excessive speed can be lethal. It is like the use of drugs in chemotherapy. Some drugs may be effective in killing a tumor, but few doctors would prescribe them due to the risk of damaging healthy cells and their human host. Real estate works similarly. Prices can be easily tamed through high doses of regulations and taxes. But governments rarely resort to such extreme measures as they can hurt property owners as well as the financial and economic systems.
The Moon Jae-in administration’s latest real estate measures were a mix of rashness and over-zealousness. The hike in taxes on the real-estate rich is more or less a punitive action. Even if one owns a 30-year-old single apartment deemed expensive by the government, you will be slapped with inexorable taxes. Is having an expensive home wrong?
If the government is really unhappy about unearned incomes as a result of rising home prices, it is enough for the government to collect taxes on excess profits through a 100 percent transaction tax, for instance, so no one can earn a cent from their property investments.
It cannot be normal to live in a country that forces homeowners to worry about losing their home to the state through taxes. Yet ruling Democratic Party (DP) members cannot understand why it is wrong to impose ever higher taxes on the rich. The lawmakers argue homeowners should not be complaining since their home values are still going up.
Excessive tax burdens can be deadweights on a society. Raising taxes on the rich is a punishment for wealth. Do all Koreans have to be poor and should those born poor have to live poorly all their lives? The National Assembly, which has legislated the punitive tax on the rich, must answer these questions.
The latest measures backfired as they helped kill jeonse, or long-term rent, deposits. The unique rent arrangement has lasted in Korea for years because of two factors — the invincible housing market and high interest rates. But that equation started to fray after the 2008 global financial crisis. As jeonse prices soared, more landlords put rents on a monthly basis as lump-sum deposits parked in banks hardly yielded any returns due to low interest rates. The working class struggled to pay their monthly rents. Government policies aimed at slowing the shift to monthly rents did not work either. The Moon Jae-in government actually brought about a dramatic return of high-priced jeonse through skyrocketing real estate prices.
One ruling party lawmaker even said that living on monthly rent is a norm in developed countries, suggesting that Korea also should shift to monthly rents after giving up all the financial merits of the jeonse system for the poor. Let’s assume that monthly rent becomes a norm here as the lawmaker says. Why such a sudden infatuation with monthly rents after no mention of them over the past three years? The DP must not blame the opposition or conservative media. The ruling party easily passed the election law and a bill to create a special law enforcement agency on top of the prosecution to investigate corruption of high-level officials, even including judges and prosecutors. It could have passed a tenants law long ago if it had the will.
Even if the DP is doing away with jeonse, it should be phased out — in other words, it should be neither too fast nor too slow. Authorities must give it a soft-landing. They should be more inventive to do so. For instance, tax incentives could be given to landlords who do not raise their jeonse price or keep a single tenant for 10 years.But that kind of flexibility cannot be expected out of this government, which believes landlords are predatory and tenants are their victims. The government divides the rich from the common people — and landlords from tenants. This is why many suspect the liberal front resorts to its old campaign strategy of dichotomy, with keen eyes on the presidential election two years ahead.
The elimination of jeonse would only bring about expensive monthly rents and harden the lives of ordinary people. The poor may even have to seek housing rented out for a few months that have no legal protection. Few among the 176 lawmakers of the DP would have brooded hard on the ramifications when they voted for the tenants’ laws last week. The National Assembly was never good, but it is the worst these days.