Home economics

Lee Hyun-sang
The author is an editorial writer of the JoongAng Ilbo.

Former President Roh Moo-hyun proclaimed that he was proud of his work in governance, except for real estate, in late 2006, his fourth year into a five-year term. In the New Year’s address in the following month, he apologized about the havoc on the real estate market. The Moon Jae-in administration has been criticized for causing more disaster to the housing market, and yet the president is unapologetic. In his nationally-televised dialogue with the public on Tuesday, Moon said he was “confident” about real estate. He was deluded about real estate when he declared his real estate policy was “moving in the right direction.”

I want to argue against his confidence. He claims that real estate prices have been “mostly stable” under his presidency. According to the Korea Appraisal Board, apartment prices in Seoul have risen steadily since he took office on May 10, 2017. With the exception of a five-week period following the first round of real estate measures on Aug. 2, 2017, prices rose steadily through early November 2018. Prices plateaued and then softened for 32 consecutive weeks after multiple measures on Sept. 13, but bounced back up from June this year.

He also contended that housing prices have become stable nationwide. He is not entirely wrong from headline data. The actual price index of multi-residential homes across the nation gained around 1 percent. But the average comes from the surge in home values in Seoul and the plunge in prices elsewhere. He is more or less reasoning that the water temperature is just right by averaging the measure of separate wells of hot and cold water.

He also argued that monthly rent and longer-term jeonse (lump-sum deposit rent) prices have come down. The jeonse index against the 100 reference in early December 2017 hovers at 94.2 nationwide and at 98.2 in Seoul. The stability, however, should be attributed to increased supply from the former government. Rent prices in some parts of Seoul have actually been climbing from the government’s sudden changes in education policy — for instance, as a result of an increased share of state exam scores in college admissions and the elimination of special-purpose and elite schools — as well as the price cap on new apartment units. Rents around some areas in Seoul — where big apartment complexes are ready for move-in after construction — are not coming down because landlords are holding onto the supply on expectations for a further surge in prices.

Kim Hyun-mee, center, minister of land, infrastructure and transport, announces a plan for the construction of a new town in the capital area on Dec. 19, 2018. [LIM HYUN-DONG]

Misguidance leads to misjudgment. It is why the market moved in the opposite direction every time the government introduced new real estate measures — over 17 times. Homeowners were betrayed by the former Park Geun-hye administration, which encouraged them to take out loans to make home purchases, and the Moon administration, which pressed them to sell every other apartment except for the one they live in.

The government has failed on real estate, either from incompetence or vain conviction. The thought of pressing down intrinsic market forces with regulations has been repeated for more than seven years since the Roh Moo-hyun administration. The extra-tight bank regulations even prevent individuals from taking out loans to buy their first home. The bargain offerings have instead ended up in the hands of those who can afford to buy them with hard cash. The increased public rents helped submerge the potential supply from individual owners. The mushrooming supply around the capital area only stoked demand for scarce offerings in Gangnam in southern Seoul. The Lee Myung-bak administration increased affordable homes nearby Gangnam. Although rent prices went up, home prices at least had been stable under Lee.

President Moon promises yet another “strong measure.” He could mean the capping of rent increases and even an increase in the ownership tax. But can he withstand a strong backlash against more taxes? It is not clear whether the government is out to stabilize home prices or win votes. After the general election in April, the presidential election will come. People without homes are becoming hopeless about owning a home under the government’s real estate policy seeking more votes.

JoongAng Ilbo, Nov. 22, Page 34