Columns
A columnist argues that treating real estate as harmful and capital markets as productive overlooks how both can deepen inequality.
Jang Deok-jin
The author is a professor of sociology at Seoul National University.
Everyone knows that President Lee Jae Myung takes a highly critical view of real estate. To him, it is “a major cause of asset inequality, household debt and the suffering and alienation of young people.” He said that “unearned income from real estate undermines fairness, common sense and national unity.” He also wants money locked in “unproductive real estate” redirected toward “productive finance.”
But it is an exaggeration to assume that all money flowing into property is unproductive. Someone who sells a home is hardly going to sit on the proceeds. Capital invested in real estate can be productive or unproductive, just as capital entering financial markets does not invariably serve a beneficial purpose. That is why “productive finance” is not really an academic concept. We can ask whether finance allocates capital efficiently to productive uses, but dividing sectors themselves into productive and unproductive categories makes little sense. The answer, then, is not to crush the property market but to reform financial markets when they fail to allocate resources efficiently.
The president’s hostility toward property has been matched by enthusiasm for capital markets. His administration has revised the Commercial Act and introduced measures to eliminate the so-called Korea discount while offering tax exemptions and income deductions to individuals and companies investing in Korean stocks. All are part of a broader effort to move money from supposedly “unproductive, inequality-worsening” property into “productive finance.”
But while the administration blames real estate for worsening inequality, evidence that capital markets reduce inequality is hard to find. For the president’s harsh criticism of property to be internally consistent, capital markets should not generate inequality.
These days, it is easy to find people who entered the stock market only to be trapped with losses of tens of millions of won. Even students tell me that they cannot sleep after losing several million won. Why, if this is “productive finance”?
Perhaps capital markets offer “fairness of opportunity” because ordinary people and young investors can participate with small sums, unlike real estate, in which even entering the market requires hundreds of millions of won. But does that make “fairness of losses” a virtue too?
It is foolish to assume that equal access produces equal outcomes. Studies across many countries show that stock market returns systematically rise with investors’ education, income and wealth. Affluent people participate more, invest larger sums and can diversify risk more easily. For someone investing borrowed money, falling prices can make each day unbearable. Someone investing spare cash can wait. An unrealized loss is not necessarily a realized loss.
Wealthier investors also have easier access to services such as private banking. While leveraged retail investors panic, repeatedly buying and selling as markets fall, affluent clients can draw on high-quality information and wait for opportunities.
Capital markets therefore create inequality just as property markets do. Property owners typically realize gains only when they sell and pay substantial capital gains taxes. Financial markets offer daily opportunities to profit, often accompanied by tax exemptions and deductions.
Who has benefited more from the Lee administration’s capital-market policies: ordinary investors or the wealthy? Have these policies reduced inequality or widened it? When hurried efforts to boost markets, including leveraged exchange-traded funds, or ETFs, backfire, who bears more of the damage? If property is bad, are stocks automatically good?
Real estate itself is not bad. If there is a problem, policymakers should examine why an inefficient financial system lends readily against safe property while neglecting other, more productive sectors.
There is a difference between asking whether schools improve students’ achievement broadly and scolding certain students because they supposedly showed no promise from the beginning. Likewise, punishing people simply because they own supposedly “unproductive” real estate is absurd.
President Lee once pushed aggressively ahead, saying, “No market can beat the government.” But after circumstances forced him to retreat from a tax reform proposal over the past month, he suddenly asked, “Is sticking to a policy always right?” It is a characteristically disarming turn of phrase.
The problem is not retreating. The greater problem is insisting, without adequate preparation, on irrational policies that alter people’s lives, abandoning them overnight when they fail and showing no reflection afterward.
A market is simply a market. The distorted belief that some markets are good and others bad has produced only the strange market we see today.
