[VIEWPOINT]A short-sighted housing policy

The housing policy of President Roh Moo-hyun’s “participatory government” has persuasive power, in the sense that it is designed to take the neglected and underprivileged into account, and was implemented in a way that is likely to win it public support in the short term. But the question of its long-term theoretical soundness seems to have been put aside.
Indeed, a policymaker at the Ministry of Construction and Transportation argues that even if the housing policy violates economic principles, it is still an extremely valid policy if it can ease the pain and meet the needs of many people.
The position of the ministry is that the market is not in a situation that allows us to engage in leisurely discussion about expanding the housing supply. Therefore, the argument goes, we should put a brake on reconstruction in Seoul’s Gangnam area, which is the main cause of rising housing prices.
According to this argument, even if this policy halts reconstruction in Gangnam, the problem of insufficient housing supply can be solved later, with the construction of a new city. The ministry also says there is no need to worry about providing housing stability for the low-income bracket, because construction of rental housing is expanding. Therefore, the ministry explains, the solution to the present housing problem is a short-term one ― rather like a pill to bring down the high fever in the Gangnam real estate market.
But it is questionable whether the market’s situation is so urgent that it needs a prescription this strong. According to the early-warning system for the real estate market that the government itself adopted, prices are not currently at a worrisome level.
Also, there has been no strict empirical analysis to support the argument that price increases in reconstructed condominiums raise the prices of nearby apartments. Because reconstructed condominium prices reflect the asset’s future value, it is problematic to compare them directly to the current prices of surrounding condominiums.
The ministry’s argument that housing supply is sufficient also has a flaw. The housing supply in the metropolitan area falls short of 100 percent, and therefore housing is insufficient in an absolute sense.
But a more serious issue is whether housing of desired quality is available at a desired location. There have been rapid changes in what constitutes desirable housing. A condominium’s view, or the makeup of the community where it’s located, can have a tremendous effect on its value, and regional differentiations in housing prices have deepened.
Therefore, no matter how many quality houses are created on the outskirts of Seoul, they will not be good enough to meet the demand for housing in Gangnam. So to meet these changes in demand, it is essential to provide new housing, through reconstruction or remodeling, in areas where the demand is high.
To avoid regulations that were expected to go into effect, including the Urban and Living Environment Improvement Act and the Act on Restitution of Development Gains, the housing developers proceeded in haste with unreasonable reconstruction projects. In many cases, construction companies or their contractors incited residents to approve unnecessary reconstruction of apartments that were in perfectly good shape.
But policy implementation and regulations should be consistent, and based on clear, objective criteria. The Ministry of Construction and Transportation is taking issue with what it calls procedural problems in the approval of condominium sales and inflated prices for reconstruction projects that have already been approved.
But so far, the ministry has been vague about just what those procedural problems are, and about what the proper prices should have been.
If it means to call those issues into question, the ministry should first offer some specific criteria, to reduce confusion in the market. Freezing the reconstruction market to control housing prices is just delaying the problem. Implementing a policy to reduce the sale prices of reconstructed condominiums will overheat the market, and will probably only add to speculation.
What the government should do is improve the legal system to invigorate normal reconstruction, and thoroughly examine what is proper restitution of development gains. Along with this, the government should pay close attention to the private sector’s response to its regulations, in the interest of long-term housing stability.
The government should keep in mind that overreaction by the government or the media to short-term trends in housing prices has an adverse effect when it comes to creating interest in the area.

* The writer is the dean of the Graduate School of Real Estate at Konkuk University. Translation by the JoongAng Daily staff.

by Cho Joo-hyun