Selective regulation

Yi Jung-jae
The author is a columnist of the JoongAng Ilbo.

Kim Soo-hyun, former policy chief to President Moon Jae-in, said that a government’s real estate policy itself is politics. He would know it very well as he was the architect of the Moon administration’s real estate policy. So it is useless to take politics out of real estate policy. But the government should maintain minimum dignity. The Ministry of Land, Infrastructure and Transport’s enforcement of caps on the prices of new apartment offerings outright disregards the market for political purposes.

On Nov. 6, Democratic Party (DP) Rep. Yoon Joon-ho representing the B district of Haeundae, Busan, posted a photo with Land and Transport Minister Kim Hyun-mee on Facebook. The two held a document clearing the Haeundae district from the list of hot areas under multiple regulations for loans, housing trade and purchase. Yoon boasted that he had repeatedly asked for Haeundae’s removal and finally got consent from her. On the same day, the ministry announced the list of neighborhoods where apartment offerings would face price caps. The government should not have exempted the posh beachside neighborhood in Busan from the list if it was really concerned about real estate price stability. Home prices in Haeundae had reached historic highs two years ago. It would have been premature to lift the regulations. Not surprisingly, prices increased immediately. Speculators flocked to the area. The Centum KCC Switzen — the first major apartment offering since the removal of regulations — achieved a subscription rate of 67.7:1, this year’s highest rate in new apartment tenders.

The three locations — Haeundae, Suyeong, and Dongrae — are the biggest voting battlegrounds in Busan in the Apr. 15 legislative elections. Votes there would define the Busan sentiment for the ruling party after it lost much goodwill due to the controversy over former Justice Minister Cho Kuk. The opposition party complains that residents would vote for the ruling party if they want housing price gains.
The ministry also excluded Ilsan west district in Goyang City — Minister Kim’s constituency before she took up her government post — from the regulatory blacklist. Except for’s Kim’s constituency, other areas in Goyang City remained on the list. Area residents had mounted a campaign not to elect Kim after she announced a new list of urban development in May.

Heukseok-dong in Dongjak district in southern Seoul and Gwacheon City, west of Seoul, were also exempted from price caps on new offerings. Heukseok-dong is where former presidential spokesman Kim Eui-kyeom bought a building just before it was designated redevelopment zone and gained 1 billion won ($849,041). Gwacheon City is home to President Moon’s former policy chief Kim Soo-hyun. Realtors sneer that Land Minister Kim has stayed loyal to her two former colleagues who retired from the Blue House.

There are grounds for suspicion. Any regulatory decisions or removal are made by a housing policy review committee with 25 members including the minister. The decision-making body is structured to be swayed by the minister. The list of non-government members is kept secret. The details of the discussions at the meeting are not disclosed. The discussion topic list is handed out on the meeting day, giving little room for careful study and judgment. There is no guideline for removing the regulation. Designation of areas for regulatory measures sticks to several guidelines, but removing is driven by whim. Since the speculative zone concept was first introduced by President Kim Dae-jung, it was applied to the Gangnam district throughout the Roh Moon-hyun administration. The Daegu and Busan regions — the usual voting base for conservatives — have come under regulation — and removal from regulations — during every election season.

The market should not be a playground for amateurish theorists. A good policymaker should communicate with the market. Policy must not serve political purpose or interests. More discretion is required for a policy that can be controversial. If stabilizing home prices was the aim, there should not have been any exceptions on the hot zones. Heukseok-dong and Gwacheon City should be included under the price cap and the Ilsan west district and Busan neighborhoods also should come under regulation. But the government stays stubborn as the president himself sees no wrong in any of his policies.

The Moon administration has come up with 17 real estate measures in two and a half years ago, vowing to tame the skyrocketing home prices in Gangnam, southern Seoul. But the apartment units in the rich neighborhood have gained as much as 1.5 billion won. The government imposed a cap on new apartment offerings to stop the runaway prices. When that did not help, it mobilized the tax and financial authorities to track down the records of those wealthy with real estate in four Gangnam districts. But in the town hall talks with the public on Tuesday, the president said he could confidently say real estate prices have come under control during his administration. The market and the president must be referring to different countries.

JoongAng Ilbo, Nov. 21, Page 30