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[EDITORIALS]Dangerous market meddling

Published: 25 Apr. 2005, 22:13

The government is making every effort to curb housing prices. This time, its targets are apartments in Gangnam that are designated to be demolished and rebuilt. Previously, the government announced that it would not allow reconstruction of high-rise apartment skyscrapers. It was followed by tax investigations of people who lived in apartments that were to be reconstructed. Now, the Construction Ministry is threatening to assume direct authority over safety tests, which are conducted to determine whether or not an apartment should be rebuilt. It is also claiming that it will assume the right to halt sales of apartments that have already been approved for sale.
The government is gathering all the forces that it can to put Gangnam housing costs under its reign ― especially since it seems that the effects of a prior policy that it implemented on Oct. 29, 2003, are wearing off.
But these real estate measures are starting off on the wrong foot. All of the measures that the government has taken are only designed to reduce supply. However, in the Gangnam area, it is difficult to secure new land on which to build. Therefore, reconstructing existing apartments is the only way to increase housing supply. Preventing reconstruction is the equivalent to reducing supply of new houses. If supply goes down amid high demand, prices will inevitably go up. If we do not increase supply, housing prices are bound to go up at some point.
It is lamentable and even pitiful that the Construction Ministry is so obsessed about lowering pre-sales prices for apartments. If prices are deliberately set below market prices, the first buyer may benefit, but starting from the second transaction, the units will be sold at market price. It is not as if the government will control housing prices forever by intervening in every single real estate transaction in Gangnam. Seeking stabilization of housing prices by restricting prices is only an illusion. No plan to solve housing prices will succeed unless the government recognizes that it is an illusion.
We have said the best way to stabilize housing prices is to provide a consistent supply. In order to stabilize housing prices in Gangnam, the government should keep building good houses. That will take time. But anti-market and short-term measures will only lower housing prices temporarily. In the long run, prices will be pressured by the market to rise again.