Skyrocketing apartment prices in places like Seoul's Gangnam neighborhood and in the Pan'gyo "New Town" have come to be too much to endure. There is no knowing when the trend will stop and how far it will go. The common people are discouraged, not just worried. It would be hard enough solving even if the politicians were working together on the issue, so it is sad to see them engrossed in mutual attacks using the cost of housing question as ammunition.
Supply has been one reason why prices have been rising so fast since 2001, but greater causes are unprecedented low interests rates the estimated roughly W400 trillion that is so abundantly on the market. Speculative investment is supported with that money and that sends prices up, and it is an endless cycle since the rising prices lead to speculative investment. The government has been unable to win public confidence in its policies and should rightly be criticized for inviting the resulting market anxieties, but it is a big leap in logic to say that government real estate policy has led to the rising housing prices. The policies in question focus on holding back demand for speculative investments, with things like stronger real estate taxes, heavier transfer taxes for people owning multiple homes, claims on the profit from reconstruction development, and the requirement that small-scale housing be constructed in equal proportion. How can things that fight the demand for speculative investment lead to rising prices? Raising interest rates would be a prescription that fits the causes, but the sluggish economy holds those in place. The situation in the housing market right now is that the government cannot use any instant remedies and therefore has to use other measures to get housing prices under control, so there are limits to what effects you see from its policies.
One should also ask whether the media has any responsibility to bear. It quotes real estate industry insiders who make predictions lacking clear basis and conveys that unfiltered, and by doing so instills expectations that prices will rise. Some conservatives media outlets are going beyond just trying to ruin real estate policy; with their claims that suppressing speculative investment is "anti-market" and that income from speculative real estate investment is the same as income from stock investment they are demonstrating an extreme form of neo-liberalism. Particularly when it comes to the sharp rise in middle and large sized apartments in Gangnam and Bundang, there is much about the situation that was encouraged by the press. For example, when the government moved to increase the required ratio of smaller housing units in reconstructed apartment complexes, they made it sound as if construction of middle and large-sized apartments would be halted. The view of some that prices on larger apartments in Gangnam will rise sharply in 2 to 3 years has been given major coverage. Even just in the reconstruction zone in Jamsil, however, there are going to be 10,000 units 40 pyeong or larger. There continues to be construction of "housing-commercial complex apartments" that are mostly with large sized units. The prices of larger units are shooting up because of exaggerated information in the housing market, and it is pathetic that the Ministry of Construction and Transportation is does not even know how many middle to large-size apartment units are going to be put on the market in greater Gangnam.
There are aspects of the criticism from members of the National Assembly and negative public opinion regarding real estate policy that are expressions of hateful feelings on the part of conservatives towards the current government. Even if you dislike the government, however, you still should not destabilize even the important policies regarding the welfare of the people. If key policies such as the October 29 Real Estate Measures and the May 4 Real Estate Measures were to be relaxed at this point it would only lead to even more confusion in the housing market. The structure of existing policies should be maintained, while there is indeed a need to fix anything unreasonable about those policies if they are hurting reconstruction more than necessary. The best thing at the same time would be to choose an area with the right conditions and develop it to the greatest extent possible so as to make a visible increase in housing supply. The idea about permits for housing transactions that was left out of the October 29 Real Estate Measures should be given careful consideration; perhaps it is time to implemented it temporarily in limited cases where a person owns more than one home.
One wants to be very careful when it comes to money rates. It is clear that a low interest rate does not help economic recovery, leads to higher housing prices, and threatens economic stability. On Thursday the Bank of Korea decided to freeze call rates. One understands that it must have been difficult to immediately raise the interest rate, but it is unfortunate that it failed to send at least the message that it could move to raise the interest rate in the near future. The case of Japan shows that if action comes too late there is a far bigger price to pay.
The Hankyoreh, 10 June 2005.
[Translations by Seoul Selection (PMS)]
[Editorial] People Who Encourage Rising Housing Prices |
