The government unveiled a package of real estate measures on July 10, including one to remove most of the tax benefits for people leasing out houses.
The related bill was approved by the parliament on Aug. 4, but just three days later, the government rolled the revision back and decided to retain the tax benefits.
Three years ago, the government offered tax privileges to landlords to encourage them to rent out their houses. Landlords could register house leases to receive tax favors.
However, caught unawares by the sudden U-turn in the tax benefit policy, they took to the streets to protest. Taken aback by the strong backlash, the government flip-flopped on the decision.
It effectively admitted carelessness in policymaking. Considering it offered tax benefits, the government may have found it hard to justify going back on its word.
Recent measures to extend jeonse (rent-free lease) periods to four years and limit the lease rate increase to 5 percent only in case of contract extension are causing turbulence in the market.
The ruling Democratic Party of Korea and the government tout them as bulwarks to protect tenants but they prompted homeowners to shift from jeonse to monthly rent, which is more expensive for tenants.
Now the government is reportedly seeking new regulations to discourage landlords from switching to monthly rents. The party is said to be moving to ban any hike of more than 5 percent in any case.
Homeowners have taken to the streets to protest recent real estate regulations. About 1,000 people held a rally in Yeouido, Seoul, on Saturday to oppose the June 17 measures that restrict loans for home purchases, among other things.
About 3,000 residents in Gwacheon, Gyeonggi Province, rallied demanding the government scrap its plan to build low income housing on a vacant lot in the city. They cite concerns about a worsening residential environment. Some residents in Mapo-gu and Nowon-gu, Seoul, oppose the government’s plans to build apartment blocks that will include a large proportion of public rental units.
Startled by the unabated popular anger at real estate measures, the ruling party went so far as to propose bills to impose sanctions against high-ranking public officials for owning multiple houses. This appears to be a bid to calm public sentiment, but such sanctions are hard to imagine in a free market economy that guarantees private ownership of property.
The administration under President Moon Jae-in has announced real estate measures on 23 occasions in about three years. The government and the ruling party have shown a pattern of taking drastic and rough measures first and soon after, plugging up loopholes with quick fixes. They failed to grasp the reality of the market, and tried only to regulate it stringently without paying heed to the possible side effects.
Rep. Kim Tae-nyeon, the floor leader of the ruling party, reportedly said that “the situation was so urgent that we had to pass real estate bills in a hurry (unilaterally).” It would be hard to expect rough-and-ready measures to function properly.
Real estate is not the only issue that reveals the rashness of the party and government.
The government raised the minimum wage sharply twice, causing many low-paying jobs to vanish and driving many small stores and restaurants out of business. Only then did it say the hike must be slowed.
It enforced a rigid 52-hour workweek, causing businesses to scream for help due to its ill effects. Only then did it embark on complementary measures to compensate for these side effects.
Rough and drastic measures produced plenty of side effects, but the government and the party paid little attention to them when those complaining were in the minority. Moon mentioned “housing justice.” They seem to approach economic issues politically and ideologically.
They are trying to diminish ill effects with stronger regulations. This way of dealing with issues are likely to cause additional side effects. They must stop enforcing policies experimentally and conform to the demand-supply mechanism of free markets.