[Editorial] Taxing the symptom

Housing markets have a way of tempting governments into believing that taxes can accomplish what bulldozers and cranes cannot. When prices climb, fiscal tools offer the appeal of speed and political visibility.

Yet housing shortages are rarely solved through the tax code. They are addressed by expanding supply and allowing markets to function with fewer distortions.

The Lee Jae Myung administration is again signaling a possible tightening of real estate taxes. The president recently noted that Korea’s holding taxes are relatively low. Presidential policy chief Kim Yong-beom argued that stronger taxation may be needed to prevent liquidity generated by the semiconductor boom from flowing into property markets.

With July’s tax overhaul approaching, the prospect of higher holding and capital gains taxes is triggering renewed disputes.

Concerns about overheating are understandable. Housing prices in parts of southern Gyeonggi Province, particularly around the semiconductor belt, have accelerated as large bonuses and rising asset values boost purchasing power. Apartment prices in Dongtan, for instance, rose 2.22 percent in the third week of June alone.

But money usually chases scarcity. That is where the government's diagnosis becomes less convincing.

Housing permits, construction starts and completions have all been declining. Supply plans have been announced repeatedly, yet visible progress remains limited. As future inventories shrink, liquidity becomes an amplifier rather than the source of the problem.

The numbers point in the same direction. Apartment move-ins this year are projected to be almost 40 percent below 2022 levels. In the Seoul metropolitan area, the decline approaches 46 percent.

With both sale prices and “jeonse” (a lump-sum housing rental system) costs rising, expectations of tighter supply are intensifying competition for scarce homes and adding to anxiety among would-be buyers and renters.

History offers little encouragement for punitive taxation. Previous administrations found that higher capital gains taxes often discouraged sales rather than speculation, reducing listings and locking up inventory.

Higher holding taxes, meanwhile, frequently found their way into rents and jeonse deposits. The burden rarely disappeared; it merely shifted.

The structure of Korea's property taxes also deserves a broader perspective. Comparisons focusing solely on effective holding tax rates can be misleading. Transaction taxes and capital gains taxes are already heavy by international standards and place Korea among the more heavily taxed property markets among member countries of the Organization for Economic Cooperation and Development.

Raising all three property taxes simultaneously would leave homeowners with fewer incentives to sell and buyers with fewer choices, further reducing market liquidity.

Tax systems work best when different levies complement rather than reinforce one another. Closing every avenue at once would freeze transactions and leave prices increasingly detached from market reality.

As the Bank of Korea is widely expected to tighten monetary policy in the coming months, imposing heavier taxes would subject households to pressure from both directions.

Such burdens may be manageable for investors with abundant cash, but they weigh more heavily on retirees and ordinary homeowners whose assets are valuable on paper but whose incomes are fixed.

None of this means tax policy should remain frozen forever. Gradual adjustments to holding taxes could be justified if accompanied by meaningful reductions in transaction taxes. Markets function best when entry and exit are both possible.

The more pressing challenge remains supply. Faster redevelopment, more housing starts and stronger incentives for private builders would do more to steady expectations than another round of tax warnings. Lee himself has repeatedly stressed the importance of expanding supply. What matters now is execution.

Governments can change tax rules quickly, but housing operates on a slower timetable. Lasting stability depends on ensuring that enough homes are built to meet demand. Tax policy has a role to play, but it cannot substitute for supply.