firmly in place has been confirmed through an abundance of historical evidence.
Protection of Property Right, Economic Growth and Real Estate Market
A plane performing aerial acrobatics suddenly fell down to the ground. This accident was caused because the pilot attempting the stunt of rapid rise pulled the control stick by forgetting the fact that he was flying reversely. As such, there are numerous instances in human history where policies of good intentions resulted in disasters. The experimentation of communism in the 20th century is one of them. In this context, the present land policy of Korea can be one of them, too.
In the present society, fall of interest rate and increase of real estate price are globally prevailing phenomena. Whilst the US government believes that such imbalance can be solved by the market, Korean government does not believe in the control function of the market. Following the number of real estate policies, such as real estate holding tax, etc., the government has issued data to distort the concentration of real estate holding, thus is forming the public opinion and re-discussing the public land concept. To expand the public land concept for the purpose of stabilizing real estate price is going against the history. It indeed is to cut off one's own nose to spite his or her own face.
The most important factor that enabled mankind, which had been continuing on hunting and picking for a long time, to embark upon the phase of the Agricultural Age was the invention of property right. It is because no body would engage themselves in farming unless their exclusive right for their own crops is guaranteed. The property right gradually developed from the 'joint ownership' in tribe units to private ownership. The target of private property also became expanded from movables to real estate and intangible assets.
Throughout the world, 'joint ownership' was universal and the ownership itself was often violated by authorities. Yet, the reason the West is enjoying affluence in life today is because of the development and protection of private property system from the earlier days. When the property right of ownership, utilization, profiting and disposal, etc. is guaranteed, one's property can most effectively be used and this will eventually result in economic growth.
In UK, the enclosure movement propelled the securing of private property right on real estate. As individuals were allowed to freely utilize the land, the woolen manufacturing industry developed in agricultural districts. As Farmers accumulated wealth and they provided fund required to build factories.
Also, UK was the first country to undergo industrial revolution through the protection of property right. Whilst France and Spain frequently underwent phases where the king held sway over tax right to violate property right, the Parliament of UK received the right of tax imposition transferred from the king to protect the property right. The reason that, despite the similar historical heritages, big difference exists in economic power between North America and the Central/ South America is because North America was a colony of UK to respect property right and Central/ South America was the colony of Spain to have experienced violation of property right by the central government.
Also, Germany and the UK armed with the new industries of electrical, chemical and automotive outdid UK in the latter period of the 19th century. It was because, while the industrial revolution of the UK in the 18th century was merely a technological reform, the new industries in the end of the 19th century was a technological reform based on scientific knowledge, thus was exerting greater influence upon economy. As such, new industries developed in the US and UK because property right on the intangible assets of scientific knowledge were protected in these countries.
Establishment of property right served a gigantic role in economic development of the UK, Germany and the US. The western world, which could actively accommodate the economic achievements of these countries, accomplished economic growth faster than other regions. As a result, the concept of property right developed in the West and these countries secured the concept that the most important duty of the state is to protect the private properties of each individual.
On the other hand, the underdeveloped countries suffered the lack of property right protection due to corruption and wayward policies of the government. The reason for economic decline in the later days of Joseon dynasty was also because the people's various property rights were not protected due to the extortion of the corrupt government officials. In addition, the communist countries to deny the private property system, such as North Korea, did not succeed in establishing a society of equality and only experienced economic catastrophe.
Despite such historical experiences, Korea is recently going through a phase where the trend is reemerging to neglect the protection of property right and particularly to emphasize the concept of public land by distinguishing real estate from other properties. Recently, the followers of Henry George, the last of the physiocrats failed to be noticed in the economic circle is increasing in Korea. While capitalists and communists respectively insist upon private ownership and public ownership of all properties, Henry George advocated the public ownership of land and private ownership of movables. From this aspect, the 'Georgists' consider Henry George's public land concept as the third alternative.
Would there be a reason as to why real estates must be excluded from the scope of private property unlike any other varieties of properties? People who believe in real estate being separately treated assert that the demand must be controlled because supply cannot be increased due to the limited resources of the land. Would this be the right thinking? The answer is no. It is because, firstly, the land is not the only resource with restricted quantity. There is no reason that only land is to be excluded from the scope of private property because various other mineral resources of petroleum, etc. are also restricted in their quantities. Secondly, the concepts of resource quantity and supply quantity are different from each other. Only the portion of resource quantity attached with the intention to sell is considered the supply quantity. Therefore, according to price, the number of people to sell would either increase or decrease. Thirdly, the advancement of construction technology enabled the construction of 60-story buildings in the present times whereas the average height of a building in the 1960s was 5 stories. In the course of the last 40 years, the usable land space has increased by 12 times. Fourthly, supply is also increased by policy. In comparison with mountainous district (64%) and farmland (22%), the percentage of building ground is very small at 2.2%. The rice is produced in surplus and, what's worse, will be replaced by importation in the coming days. Therefore, conversion of farmland is inevitable. If only 10% of the farmland is converted into building ground, the supply quantity will be doubled. As such, the supply quantity of land can be largely increased with the judgment of owners, technological development and policies, etc., thus real estate is fundamentally the same as other economic properties.
The second reason to treat real estate differently is the notion that it is a public property. Public property refers to properties of non-exclusion and non-competition. Just like broadcasting service, non-competition means that using of the property does not result in decrease of the usable quantity. Like the national defence service, non-exclusion means that people who have not paid for a service are not excluded from receiving benefits of the service. From this perspective, real estate cannot be a public property. Nevertheless, the reason the importance of real estate is being emphasized is because of its characteristic of immovability. For example, when the government develops a certain region, the land prices of the surrounding regions increase. This is because of the immovable quality of real estate.
It would be ideal if the surplus profit generated in the course of it can be redeemed. However, the problem is that the entire surplus profit cannot be redeemed with the administrative power of the government. It is the reality that the government is failing to manage even the state-owned land with its administrative faculty. According to the data of inspection on government offices conducted by the National Assembly in 2004, the scale of neglected state land is equivalent to the amount of thirteen thousand billion won, which is 10% of the total state budget. The data also show that the state land to the size of Seoul is left unregistered. Considering the current status, it is impossible for government to impose tax by setting on the fluctuating prices of state land throughout the country. This is why the Act on Surplus Land Profit Tax was found discordant with the constitution in 1999.
Some may insist even the partial redemption is significant in the fact that it is the realization of economic justice. However, unless the surplus profit is completely redeemed, land price will continuously rise until there is no more surplus demand. The only solution is to increase supply by lightening regulations of land supply and to focus on achieving economic recovery. This will create new places of investment, increase interest and decrease demand for real estate, thus will result in price stabilization.
Conclusively, the goal to stabilize real estate price is right, yet the method is wrong. The biggest wrong is not to trust the market and to reversely recognize the causal sequence. Although crime rate increases in proportion to the increasing rate of police officers, we cannot say that crimes increase because of the increase of police officers. Likewise, the rise in real estate price is not because of speculation. Rather, investors flocked together because of the rise in real estate price. It is true that the systematic price conference and defrauders added fuel to the rising price. However, it all began simply because the demand was greater than the supply. Given that, we must not do such things as cornering all real estate investors as speculators and creating a system to violate the private property system, which is the foundation of market economy, without devising plans to increase supply. The government is already restricting the purpose and use of real estate for public interest. In addition, numerous restrictions are being imposed on real estate, such as restrictions on floor area ratio, environmental regulations and height regulations, etc. Public land concept beyond this level may not only cause market distortion and inefficiency, but also will not help us achieving price stabilization.
Kim Seung-wuk (Professor, Chungang University firstname.lastname@example.org)