[EDITORIALS]Pop the bubbleA reconstruction boom is heating up the real estate market, which had remained calm for most of this year. Seoul’s Gangnam district is seeing a surge in the value of reconstruction-target apartments. The government has vowed to dampen speculative transactions, but its effectiveness is untested. While the central government tries to restrict reconstruction, local authorities want the opposite.
The overheated reconstruction market is driven by expectations of quick profits coupled with contradictory policy measures. Housing should be rebuilt if it is unsafe, but rebuilding projects of late have little to do with safety and a lot to do with financial interests of construction companies and residents.
A recent case, the rebuilding of an apartment complex in Seoul, was pursued by residents but stifled by the opposition of construction companies, who make their money by adding new units in a rebuilt apartment complex and selling them. The residents wanted the new units priced outrageously high so the value of their units would also rise; the construction company said it could not sell the new units at that price. That is how speculative bubbles form.
Conflicting policies by the central and local governments add to the bubble. The all-important safety diagnosis is performed by local authorities under the district head, whom residents elect. They are vulnerable to public pressure to inflate housing prices.
Reconstruction can waste resources, send apartment prices sky-high and add construction waste to the environment. Irresponsible construction also ruins Seoul’s skyline. The government should stick to its principles to avoid such side effects. Reconstruction should be handled from an overall city planning perspective. Safety standards should be revised to be more objective and transparent. That would prohibit local authorities from using too much discretion in applying the standards and reduce complaints by residents. It is wrong to let reconstruction be a source of speculative fever any time or anywhere.