Real Estate Through Young Eyes ②: Let Young People Ride the Running Horse

The need to stabilize real estate prices, which I pointed out in a previous Op-Ed, “Now Is the Time to Address the Real Estate Discourse,” is recognized by both the left and the right. That is why both the ruling party and the opposition are pouring out policy measures, though they are fundamentally taking very different approaches.

The progressive camp argues for housing stability through stronger government regulation, while the conservative camp argues for housing stability through measures such as expanding supply. However, I would like to propose an approach that is not often addressed in mainstream politics.

The alternative I propose is “enabling young people, too, to benefit from rising real estate prices.” This idea is based on the belief that young people should be able to gain a foothold as participants in real estate ownership, even if the size of their stake is extremely small.

At first glance, this may sound similar to former Seoul Mayor Park Won-soon’s recently announced “national real estate sharing system.” But Mayor Park’s proposal seeks to supply real estate cheaply to the public using funds secured through the recapture of real estate “unearned income” and development gains, a plan that would inevitably entail an extremely high degree of state intervention. Even by simple reasoning, because the state would determine what counts as “unearned income” and how much of it there is, it would take the form of mechanical and coercive redistribution that runs counter to liberal democracy.

I propose youth participation through the market. There are already many tools in the market that make the democratization of real estate ownership possible. P2P firms specializing in real estate PF (project financing) are doing brisk business, and there are also products such as REITs that give numerous investors opportunities for indirect ownership of real estate. Regulations on real estate P2P, which is directly affected by the real estate market, and on REIT products should be abolished so that more young people can grow their assets in line with the rise in Seoul housing prices.

Of course, it is also true that the government has been making considerable efforts to improve matters, as seen in the recent advance notice of legislation on the P2P Finance Act. However, as seen in the shift from limiting individual real estate investment to 10 million won per existing firm to limiting it to 30 million won in total, there are also aspects that restrict investors’ freedom.

The situation is much the same for REITs. The government, concerned about regulations on REITs and the declining attractiveness of REIT products, has shown willingness to overhaul related policies (“Measures to Promote Public Offering and Listing of REITs,” Ministry of Land, Infrastructure and Transport and Financial Services Commission), and it has eased related regulations. However, most of that deregulation has been on the investment side of REITs, while there have been no particularly meaningful easing measures on the product side of REITs themselves.

The U.S. case shows that in America there are listed REITs investing in nearly every type of real estate, including residential property, commercial property, office property, and even data centers. (“U.S. Data Center and Logistics Warehouse REITs Post Returns Exceeding 40%,” The Chosun Ilbo) And the average returns of these REITs reach as high as 48.5%. If Korea also restructures related policies so that diverse REIT products can be listed, not only young people but a large share of our citizens can become beneficiaries of rising real estate prices.

Just as there are tax deduction benefits for pension savings for the middle-aged and elderly, it would also be a good idea to provide benefits for young people investing in P2P or REIT-related products. This could encourage more active asset management by young people, leading to faster asset accumulation and expanded opportunities for upward mobility.

Furthermore, enabling a large share of the public to benefit from rising real estate prices would have effects beyond economic gains, including easing the severe intergenerational and interclass conflicts we face. As shown by our social conflict index, which ranks near the top among OECD countries, our society already experiences intense conflict frequently. (“Korea Ranks at the Top of the OECD in Regulation and Social Conflict,” JoongAng Ilbo) If such conflicts can be eased through this approach, we can also expect synergy effects from lower conflict-management costs and greater national unity.

The preamble to the Constitution of the Republic of Korea states that our country must “further strengthen the free and democratic basic order.” Based on the basic principles of liberal democracy, it is now time to give young people a chance to get on board the turbulent real estate market as well.

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Original title: 청년이 본 부동산 ②: 달리는 말에 청년도 태워야

Author: Jeong-hwan Jo

Date: 2020-02-12

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=free_opinion&pn=15&idx=22376