The subject matter at the center of this study is the possible impact of a universal basic income (UBI)-paying landholding tax—a key topic of discussion in policy circles today—on housing prices, the housing cost burden, and housing inequality in South Korea.
After the introductory chapter, this study surveys, in Chapter II, the evolution of the housing policy and the current status of the housing market in Korea, and the developments in the public discourse on housing stability. The purpose of reviewing the housing policy, evolving housing market, and theoretical discussions on housing stability is to determine whether a landholding tax, if introduced into the current Korean society, could serve as an effective policy and regulatory environment.
Chapter III surveys the existing discourse on landholding and other property-related taxes in Korea, and analyzes the effects of introducing the kind of landholding tax proposed herein. For the empirical analysis of the effects of the landholding tax, this study employs the intrinsic theory of value, the DiPasquale-Wheaton (DW) model, and a vector autoregression (VAR) model to measure and analyze how the general property tax would affect the home sales prices, costs of leases, the number of housing permits issued, and the housing stock. The chapter concludes that the tax would reduce the home sales prices, without much affecting the costs of leases. In other words, the analysis confirms that the proposed landholding tax would have an impact on the state of housing in Korea, but not to the extremes foreseen by theoretical models used in other studies.
Chapter IV examines the possible effect of the landholding tax on lowering the housing cost burden and mitigating housing inequality. Specifically, the chapter analyzes: (i) how the tax would alter the price-to-income ratio (PIR) and the rent-to-income ratio (RIR); (ii) how the tax would affect behavior of households overburdened with housing costs, using a ratio-based approach similar to the concept of the PIR as well as the residual income approach; and (iii) how the tax along with the accompanying UBI would affect housing inequality by estimating the Gini coefficient, the income quintile share ratio, and the relative poverty rate on the basis of disposable income and residual income.
The analysis shows that, first, the landholding tax would lower housing prices, and thereby lower the PIR as well. UBI would lead to further decreases in the PIR. Paying UBI to Koreans would counteract the rise in rents, helping the RIR remain at more or less the same level across the provinces and Korea, while actually lowering the RIR in the Seoul-Gyeonggi and other metropolitan regions. This suggests that the introduction of a landholding tax, in the absence of adequate renter protection, might serve to transfer the tax burden onto renters, compelling them to spend a significant portion of the UBI they receive on paying rents.
Second, the analysis of the impact of the landholding tax on households overburdened with housing costs reveals, among other things, that renters paying monthly rents, low-income and low-asset households, households of persons under the age of 30, and single-person households were relatively more burdened by housing costs than others in Korea. The ratio-based approach shows that the landholding tax could help renters paying monthly rents reduce their housing costs. However, homeowner households would actually bear a greater burden due to the obligation to pay more in taxes. The residual income approach, on the other hand, suggests that renters and homeowners alike would escape the category of households with little residual income. In other words, the ratio-based approach seems to transfer excessive housing costs onto homeowner households. The absolute value or residual income approach, on the other hand, suggests that the added tax burden would nonetheless not threaten households’ ability to pay appropriate non-housing expenses.
Third, the analysis of the impact of the landholding tax on income inequality reveals that the tax would improve all the indicators of income distribution, including the Gini coefficient, the income quintile share ratio, and the relative poverty rate.