President Yoon Calls for Tax Reform to Address Housing Market Issues

President Yoon Suk Yeol addressed the national discussion on real estate policy on July 23, labeling the phenomenon of 'one smart home' as a serious issue. He noted that policies aimed at protecting the one-household, one-home principle have failed to distinguish between housing prices and ownership purposes, leading to increased investment demand for the most expensive properties. President Yoon emphasized the need to discuss the tax burden on high-value homes. The upcoming tax reform proposal, set to be announced at the end of this month, will focus on how to tax high-value single homes, which has emerged as a key issue. While the direction is correct, poorly designed regulations could lead to further market distortions.

Taxing based solely on the number of homes can result in individuals with multiple properties paying more taxes than those who own a single high-value home, despite having similar total asset values. As regulations on multiple homeownership tighten, demand shifts toward high-value properties that can evade these restrictions. The 'one smart home' phenomenon is not solely a result of weak regulations; it is also a consequence of investment patterns shaped by the focus on the number of homes. It is essential to reasonably reflect the value of ownership rather than just the number of homes and to tax high-value single homes in accordance with asset size.

However, simply replacing the outdated boundary of home count with a new boundary based on high-value criteria is insufficient. If the tax burden increases sharply once a specific price threshold is crossed, demand may shift below that threshold, or long-term residents with lower incomes may be unable to bear the tax burden. President Yoon stated that the goal is not to artificially lower housing prices and that using tax policy to suppress demand should be considered an exceptional measure. His suggestion to replace 'actual residence' with 'residential use' reflects the need to consider both price and ownership purpose. Individuals temporarily away from their homes for work, education, or medical reasons should not be treated the same as speculative owners, but objective criteria for assessing residency history and other property ownership must be established. The aim should be to tax according to asset value and ownership purpose, rather than punishing expensive homes.

The loopholes in capital gains tax exemptions also need to be addressed. During the discussion, a proposal was made to limit the capital gains tax exemption for single-home sales to once in a lifetime. President Yoon agreed that providing unlimited benefits is problematic and suggested considering reducing benefits based on the number of times or setting a cap on the total amount of benefits. If individuals repeatedly switch to high-value homes while receiving the same exemptions each time, the single-home capital gains tax exemption could be exploited as a means of asset accumulation. The long-term holding special deduction also needs to be adjusted to better reflect the purpose of residence rather than mere ownership.

Limiting repeated exemptions and imposing excessive capital gains taxes on normal sales are different issues. Increasing the burden of ownership while blocking exit routes at the transaction stage may lead to more homeowners choosing to hold onto their properties rather than selling, exacerbating inventory shortages. President Yoon acknowledged the need to consider a proposal to recognize ownership taxes as necessary expenses when calculating capital gains. This would allow some of the burdens at the ownership stage to be reflected at the sale stage. It is crucial to design regulations that prevent the misuse of repeated exemptions while not obstructing normal sales and residential mobility.

The government should not stop at merely presenting high-value criteria and ownership tax rates. It must provide a comprehensive framework that explains who bears the burden, why, and under what circumstances protections are offered, as well as how to limit repeated capital gains tax benefits while keeping exit routes open for sellers. The rise of the 'one smart home' phenomenon is not solely due to weak tax burdens but also because of poorly designed tax policies. The success of this reform will depend not on the intensity of the taxes but on how effectively it corrects distortions from ownership to sale.