Taxes are not a tool for controlling housing prices

Lee Sang-ryeol

The author is a senior editorial writer at the JoongAng Ilbo. 

The principle of "high property taxes, low transaction taxes" has long been accepted as conventional wisdom in Korea. It became the justification for introducing the Comprehensive Real Estate Holding Tax in 2005, a levy rarely found elsewhere. After taking office in 2008, former Finance Minister Kang Man-soo searched for the academic basis of the slogan but found none. According to his memoir, "The Challenge of the Korean Economy as Seen from the Field" (2024), the phrase stemmed from a misunderstanding of a public finance scholar's suggestion that assessed property values should be raised to strengthen local property tax revenue. The comprehensive real estate tax was instead introduced during the Roh Moo-hyun administration as a political response to surging housing prices.

Ironically, the International Monetary Fund expressed a different view. In 1975, it reportedly argued that recurrent property taxes should remain low because they resemble user fees for local public services. Just as restaurants do not charge wealthy customers twice as much for the same meal, property taxes should generally apply a single rate. Since they fund services such as policing and transportation, taxpayers should not be treated differently according to wealth. Some experts also argued that international comparisons are of limited value because public services vary by region and local residents determine the taxes that finance them.

The IMF reportedly took a different stance on transaction taxes, reasoning that purchasing real estate itself demonstrates the ability to pay. Yet the slogan "high property taxes, low transaction taxes" appealed to the public because it promised heavier taxes on wealthy property owners while easing the burden when homes were sold.

The pattern became even more pronounced whenever progressive administrations confronted surging housing prices. Property taxes were repeatedly increased, yet transaction taxes, including acquisition and capital gains taxes, were left largely untouched. At the same time, profits from selling real estate increasingly came to be viewed as unearned income deserving heavier taxation. The result was not a system of high property taxes and low transaction taxes, but one in which both ownership and transactions carried heavy tax burdens. Policymakers may have expected that making it more expensive both to own and sell homes would curb speculation. Instead, because housing is an essential necessity, many owners simply refused to sell while buyers continued searching for homes. Listings shrank and prices climbed even further.

The government now appears ready to raise real estate taxes once again. President Lee Jae Myung recently said that property owners in Korea should bear holding costs comparable to those in advanced Western countries. Kim Yong-beom, the presidential chief of staff for policy, has likewise said that it is both necessary and appropriate to make "reasonable adjustments" to property holding and capital gains taxes. Although officials describe the proposal as a rational adjustment, the market has interpreted it as a clear signal that real estate taxes will rise. Such a move would represent a notable policy shift for the Lee administration, which until recently described tax increases as a last resort for stabilizing housing prices. While the government attributes rising home prices to the semiconductor boom, changing course on taxation risks undermining public confidence in both housing and tax policy.

There are also important questions surrounding higher property taxes. Compared with other members of the Organisation for Economic Cooperation and Development, Korea's recurrent property tax burden as a share of GDP is somewhat below average. Yet when acquisition taxes, capital gains taxes and other real estate-related levies are included, Korea already ranks among the highest-taxed countries. Higher taxes inevitably impose greater burdens on citizens. If increases fall primarily on wealthier homeowners, critics will argue that property taxes are being transformed into a de facto wealth tax.

Property taxes are not taxes on income actually earned. If they become excessive over time, they can amount to a gradual confiscation of private property. In rental housing, landlords are also likely to pass higher tax costs on to tenants, driving up both jeonse (lump-sum deposits) and monthly rents. Higher housing costs then feed back into higher home prices. Korea already experienced this during the Moon Jae-in administration.

If the government truly wants to normalize the real estate tax system, it should first abandon the idea that taxes are an effective tool for controlling housing prices. Above all, punitive property taxes should never become a means of deflecting public criticism over failed housing policies. Ordinary citizens whose lives have little to do with a semiconductor-driven housing boom should not be left paying the price through heavier tax bills, or worse, another housing market crisis.