[Open Forum] Fully Overhaul the 20-Year-Old Reconstruction Excess Profit Recapture System

It has been nearly 20 years since the excess profit recovery system for apartment reconstruction projects (the reconstruction levy) was implemented. The policy was highly controversial from the moment it was introduced, and it remains controversial today.

The reconstruction levy was introduced to stabilize real estate prices. However, since its introduction, the comprehensive housing sales price index has surged from 68 to 105. From 2012 to 2017, during a downturn in the real estate market, it even became a policy that ran counter to the goal of stabilizing property prices.

Even now, the reconstruction levy continues to produce many side effects. The current government has said it would review the issue from a comprehensive perspective and pursue sweeping regulatory reform, but it remains unclear how much adjustment will actually be made. At present, the three most notable problems are as follows.

First, the reconstruction levy can directly and indirectly infringe on property rights. In general, people buy homes by pulling together savings and loans. But if a home unexpectedly becomes subject to reconstruction, the owner may have to take out additional loans not only to cover various reconstruction-related costs but also to pay the reconstruction levy. If obtaining further loans is no longer possible, the owner may be forced to sell the home, which effectively amounts to being deprived of ownership against one’s will.

Second, delays in reconstruction also negatively affect the residential environment. The time for reconstructing large planned cities built in the 1980s is fast approaching. If redevelopment misses the right timing, large numbers of aging homes can emerge all at once. That is why reconstruction must be carried out regularly and at the appropriate time. A system that delays reconstruction ultimately lowers the quality of life for the public.

Finally, reconstruction regulations are detrimental to real estate stability. Korea has the highest population density in the OECD and ranks among the highest in the world overall. In countries like Korea, where population density in certain areas is especially high, more relaxed reconstruction rules should be allowed in order to ensure efficient housing supply. But increases in the reconstruction levy slow reconstruction down. This keeps demand high while limiting housing supply, resulting only in higher prices.

Considering these factors, the reconstruction levy should be substantially reduced. In fact, the reason for introducing it began with labeling the gains from reconstruction as “abnormal.” It reflected a cold social attitude toward people seeking to build wealth through real estate. In reality, however, many people—including actual owner-occupants—do not fit that image.

The reconstruction levy has already caused many side effects, and if this trend continues, it will create even more serious problems in the future. I believe the time has come to fundamentally overhaul the reconstruction levy in order to shed negative preconceptions about reconstruction and solve housing problems.

Seungju Bae, Intern Researcher, Center for Free Enterprise (CFE)

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Original title: [자유발언대] 20년된 재건축초과이익환수제 전면 개편해야

Author: Seung-ju Bae

Date: 2022-08-08

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=free_opinion&pn=8&idx=24888