Can Home Prices Distinguish “Real Demand” from “Speculation”?

Discussion over real estate tax reform is flaring up again. At the recent National Grand Debate on Real Estate Policy, one proposal was to protect owner-occupiers with a single home while increasing the property tax burden on ultra-high-priced homes, multiple-home owners, and homes held for speculative purposes. One has to wonder whether the idea is to discourage ownership of multiple homes, thereby channeling demand into “one smart home,” and then raise the tax burden again because that one home has become too expensive.

Concerns about housing price instability are valid. The aim of protecting end-users is also fully understandable. Still, it is worth asking whether the solution should be to tax homeowners differently based on their purpose for holding a home. More criteria do not automatically make policy fairer. People will naturally move in the direction most advantageous under the system. They may change their registered address to meet owner-occupancy requirements, split ownership names to reduce tax burdens, or move up the timing of gifts.

In particular, as taxes and lending regulations on multiple-home owners were strengthened, the phenomenon of “one smart home” emerged, with demand concentrating on a single home in a prime location with high asset value rather than several homes. If policy has encouraged a preference for one expensive home and now seeks to regulate it again simply because its price is high, that amounts to covering distortions created by one policy with yet another regulation.

It is also difficult to define an ultra-high-priced home based on price alone. Housing markets differ between Seoul and other regions, and even within the same area, prices vary depending on a home’s size and location. Owners also differ widely in income and holding period. A homeowner’s income may remain unchanged even as surrounding home prices rise sharply, leading to a large increase in taxes. For a retiree who has lived in one home for a long time, a rise in home prices is not income that can be readily spent.

Raising property taxes does not necessarily increase the number of homes put on the market. If the burden at the transaction stage, including capital gains tax, is already heavy and lending regulations are layered on top of that, the decision to sell becomes even more difficult. Owners may instead choose to keep the home or gift it to their children. As transaction costs rise, home sales decline, and the choices of those who need to move because of work or family circumstances become more limited.

Attempts to distinguish between end-user demand and speculation have already been repeated many times. Tax rates and lending conditions were differentiated by number of homes, price, region, and period of residence, and exception clauses were added whenever problems arose. The system grew ever more complex, but market instability did not disappear. Rather, the real estate market became structurally overly sensitive to policy announcements.

Complex distinctions also blur the focus of policy. If, whenever home prices rise, policymakers pour their energy into identifying who is an end-user and who is a speculator, the more fundamental question of whether enough housing is being supplied in the areas people want to live in gets pushed aside. If reconstruction and redevelopment are delayed in areas where demand is concentrated, and private-sector supply is blocked by various permits and regulations, then no matter how finely taxes and lending standards are subdivided, the scarcity of housing will not diminish.

The tax system should be simple and consistent. If tax burdens vary greatly depending on the number of homes owned or the presumed purpose of ownership, people will find it difficult to make long-term plans. Sharp increases in tax burdens should be avoided, and taxes and regulations that obstruct transactions should be rationally overhauled. There is also a need to improve redevelopment projects and permitting procedures so that the private sector can supply housing that matches demand.

To protect end-users, the market must be allowed to function properly. Rather than having the government determine one by one who qualifies as a genuine end-user, what matters is creating an environment in which housing can be supplied and traded smoothly. Individuals should be able to choose homes according to their own circumstances and needs. Real estate policy should be operated on the basis of consistent principles that do not distort individual choice.

Sung-no Choi, President of the Center for Free Enterprise (CFE)

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Original title: 집값으로 ‘실수요’와 ‘투기’를 가를 수 있나

Author: Sung-no Choi

Date: 2026-08-02

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=press&pn=1&idx=29338