[VIEWPOINT]Real estate regulation doesn’t work

The British historian Arnold Toynbee said, “History repeats itself.” I wonder whether the same concept will apply to our government’s real estate policies. Recently, the government announced a series of new real estate policies, and some of them made me feel embarrassed. They looked familiar to me, as if I were reading old newspaper articles by mistake.
One example is the governing Uri Party’s plan to regulate housing rent, in both deposits and monthly payments. Fortunately, the plan has been suspended because the government put the brakes on it. The Uri Party had proposed extending a typical lease period from two to three years and limiting maximum rent increases to the same tenant to 5 percent.
In 1989, the-then opposition Peace and Democracy Party announced a similar proposal to protect tenants. The party proposed extending the lease period from one to two years and limiting rent increases to 5 percent. A revised bill for the protection of tenants’ rights passed the National Assembly in December of the same year. However, in early 1990, right after the passage of the law, it became extremely difficult for people to find housing for rent because the cost of rentals skyrocketed. Many people committed suicide because they could not find a room to rent.
The policy, which was designed to relieve burdens on tenants, in reality drove them onto the street. Also, the provision that limited rent increases for the same tenant to 5 percent was seldom observed. Nevertheless, 17 years later, the Uri Party presented almost the same proposal. I wonder if the party has studied the side effects and ineffectiveness of that proposal.
The repetition of failed real estate policies does not stop there. When the late Hyundai Group founder Chung Ju-yung ran for president in 1992, he put forth as an election pledge the same plan to provide “half-price” apartments to buyers that the Grand National Party has currently adopted as a party platform. If the plan to cut the price of apartments in half was possible, would the government or the political parties have ignored the skyrocketing housing prices for the past 15 years? Supplying apartments built on rented land is one of the various ways that housing units can be supplied to the real estate market. But hanging the slogan “half-price apartment” on it is nothing but a repetition of a political catchphrase of the days of old.
Other real estate-related policies that the current government has tried to use to regulate apartment prices, such as the bond-accompanied apartment bidding system and the price ceiling system, have either failed or been discarded in the past because of bad side effects. The system of putting a cap on new apartment prices has the effect of lowering the sales price of apartments now. But we have already experienced that its side effects go much deeper and last much longer than what we see in the present. From the latter part of the 1970s until 1998, new apartments were supplied at lower prices than existing units due to the implementation of a price cap system.
As a result, everybody jumped into the competition to win the right to buy a new apartment and speculative investment in real estate never stopped. That was because people who won the right to buy a new apartment could make a fortune, because the prices of new units were cheaper than existing ones. The cap price system actually fanned speculation.
Under that situation, in which the sales prices of new apartments were regulated by the government, there was no improvement in the quality of apartments for nearly 20 years.
Regardless of which construction company built them, the apartments were built in a row like military barracks and their floor plans were similar to each other, based on the size of their floor spaces. Therefore, the demand that people had for better- quality housing was never satisfied.
It can be explained, therefore, that the reason people always rush to buy new apartments, despite the excessively high prices, is because they want to live in a better-quality unit. The bond-accompanied apartment bidding system has the advantage of recouping the excessive profit that the construction companies gain and putting it in the government’s coffers. But it has already been proven the system suppresses the supply of private housing and does not work to stabilize housing prices because the amount of the accompanying bond will ultimately be added to the housing price.
The past attempts of the government to regulate the real estate market shows that the problems have not been cured, and that bad side effects have occurred. The government and both major political parties, either the governing party or the opposition, must change their way of thinking. Although it is belated, they should divide the housing policy into two sectors: one for the welfare of people with a low income and the other to be entrusted to market forces. They need to change their real estate policies at their roots.

*The writer is an editorial writer of the JoongAng Ilbo.

by Shin Hye-kyung