[VIEWPOINT]Solutions that make things worseI met the deputy prime minister of finance and economy, Kwon O-kyu, a few days ago and asked him what problems he worried about the most these days. “They are the financial market and real estate,” he said. When I asked him the biggest problem the Korean economy would confront next year, his answer was “real estate” again. In an economy where the people’s livelihood is in bad shape and the future prospects of the national economy are opaque, we are in a situation where the deputy prime minister of finance and economy has to agonize over real estate problems instead of vital issues. These days, almost all people we meet talk about real estate. They say that apartments in Gangnam, the rich residential area south of the Han River in Seoul, that sell for outrageous prices represent an abnormal situation. Some predict that the real estate bubble will burst sooner or later; others say it never has despite historical inflation trends.
Politicians have seized on the issue. The Grand National Party’s Hong Joon-pyo proposed half-price apartments, saying it would be possible if they were built on leased land. That’s become the party’s official policy now, and the party is boasting about it.
Probably stimulated by the rival party’s success in grabbing public attention, the Uri Party seems to be in a frenzy looking for an epochal real estate policy. At a consultation between the party and the government on Friday, party leaders seem to have made various requests to the government, including a price ceiling on private apartment units. It is said that the party has demanded even stronger measures.
But the way the political community is handling the real estate issue makes me uneasy. They are too obsessed with the idea of making policies for shouting sweet slogans at the people. Almost all policies have side effects, but the politicians put the demerits of a policy on the back burner and highlight the good side only. The idea of providing apartments at half-price is no exception.
Mr. Hong claims that his proposal is an epochal one that will allow the government to control apartment prices. But his proposal is the same as a plan that the Korea National Housing Corporation presented to the Blue House in a report in August 2005. If the plan is as good as Mr. Hong proclaims, it is hard to see why the Roh administration, which has invested its reputation in controlling real estate price inflation, has not already adopted it.
The president of the housing corporation, Hahn Haeng-soo, said, “Although the idea of housing units on leased land is praised as a silver bullet, it is not. It is one of many methods of providing housing, and you may understand it as a form that stands between an ordinary house for sale and a rental house.”
Actually, there were many members who questioned the effectiveness of the half-price apartments in the Grand National Party. That was the reason it took time to adopt the proposal as the party’s official policy. By coining an unusual name, “half-price apartment,” there is a possibility that the party will disappoint the people after building up their expectations,
There is no elixir that can control housing prices in one stroke. And they should not be controlled at once. I also think that the housing prices these days are not normal and there is a bubble. But if the bubble is burst at once, there will be bigger side effects. It is desirable to deflate the bubble gradually. Otherwise, we have to increase the scale of our economy while calming bubbles so that they do not grow bigger.
Japan’s lost 10 years is a bitter experience that was caused by the mishandling of a bubble. But even the Uri Party, not to mention the Grand National Party, makes a fuss about controlling the housing prices at once. That is because they can get more votes by doing so. They are approaching the real estate issue with political logic.
One of the reasons the real estate policy of Roh Moo-hyun administration has failed is because it approached the issue with political logic. Ignoring the fundamental problem that money is too abundant in the market and the supply of housing is short, the administration has been busy dividing the people into those who own expensive homes and those who do not. By tossing “tax bombs” at homeowners, the administration received applause from low-income people but left the gap between the oversupply of money and short supply of housing unattended.
When housing prices went up further, even though the government proclaimed that housing prices would drop, it criticized real estate speculators, contractors and the press. The real estate problem will be a big issue in the presidential election and political slogans will be everywhere. But let’s not trust the claims about controlling housing prices at once. That is a solution that can either not be done or shouldn’t be done. The claim sounds sweet to our ears, but has a low chance of being realized. And if by chance it were, there would be some nasty side effects.
*The writer is the business news editor of the JoongAng Ilbo.
by Lee Se-jung