[VIEWPOINT]Housing policies fight the market

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[VIEWPOINT]Housing policies fight the market

The present government has introduced measures aimed at stabilizing the real estate market seven times already. Every time, government officials said, “Now, the real estate speculation boom will be over. The prices of houses will drop. For that reason, it would be better to wait some time before buying a house.”
Nevertheless, the reality was a far cry from their prediction. The effect of the government’s measures on the real estate market did not last more than three months at a minimum and no longer than a year at the most.
After a period of time following the government’s announcement of a new measure, housing prices in a specific area skyrocket.
Subsequently, they repeatedly create a whirlwind of nationwide real estate speculation.
The real estate market also moves according to the market principles of supply and demand. Nevertheless, the government has responded with anti-market principles by suppressing the demand for real estate by imposing taxes and regulations while neglecting the supply side.
Even the suppressive measures themselves were not complete. They had loopholes, such as excessive bank loans taken out by consumers to secure real estate, an overflowing money supply with short-term funds that amounted to 530 trillion won ($572 billion) and government compensation for land to be used for the balanced development of provincial areas that amounted to 30 trillion won.
How can we expect a real estate market to become stable when the supply is blocked and the demand is out of control?
In early November, the real estate market started to show signs of another market upheaval.
In response, the government quickly invented another real estate measure, which it announced on Nov. 15. The difference from previous government measures is that the new one emphasizes the supply side of the market. However, the measure satisfies only half of the market’s requirements.
It should be complemented with measures such as lowering the transfer tax on real estate, easing restrictions on apartment rebuilding plans and supplying apartments with medium to large floor spaces at the right time and right place to meet demand.
First of all, it is necessary to take action to make it easier to buy and sell existing units. However, some are concerned about the side effects of too much supply in the market if the new towns fail to function as residential areas and instead become bedroom communities.
On the other hand, there are no policies designed to make it easier to buy and sell existing houses that occupy more than 50 percent of the total housing supply, despite the fact that excessive transfer income taxes on real estate hold back that leg of the market.
At present, about 2.5 million houseowners that own multiple houses have 8 million housing units. If the government implements a plan to encourage the owners of multiple houses to dispose of the extra 5.5 million housing units that they own, the supply of housing will drastically increase.
Second, the supply of housing in the Gangnam area should be expanded. The Gangnam area is in chronic need of supply, as demand is high for the area’s better educational environment, transportation conveniences and living conditions. The government’s measures in November did not include any plans to add supply in Gangnam, the epicenter of skyrocketing housing prices.
It is difficult to stabilize housing prices under the current situation. The government has virtually blocked, in the Gangnam area, the supply of existing houses by raising the transfer profit tax on real estate and the supply of new apartments by regulating rebuilding plans.
Third, according to “the sales plan and the number of households to be accommodated in Geomdan New Town” announced by the Ministry of Transportation and Construction, apartments that have a more floor space than the government-designated standard size of 85 square meter will amount to only 28.6 percent of the total number of housing units.
However, according to a population estimate by the National Statistical Office, the 40 to 54 age group, which demand medium to large-size apartments in the Seoul metropolitan area, will be growing until 2023.
Moreover, as the demand for medium to large apartments increases as incomes grow and living conditions improve, it is worrisome that the supply of medium to large apartments will be short.
The government should learn a lesson from its experiences of trying to bring about a whirlwind of surging housing prices. However, when the government announced the Pangyo development plan, it emphasized the supply of small units.

*The writer is a professor at Myongji College and is a tax accountant.

by Park Sang-keun
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