Let the market decideThe government has released its 18th real estate measure. No government has been so focused on one economic agenda. The latest set of measures employs all remaining means to suppress demand — raising price caps on new apartment offerings to 322 districts around the capital area and tightening real estate-related financing. It would be a relief if the new measures can help reign in runaway housing prices. But obviously, the measures will fail as they upset market principles.
The government stays stubborn. Seoul Mayor Park Won-soon came up with more bizarre ideas. He asked the government to give him the authority to tackle housing prices in Seoul. He even proposed to freeze rent rates for five years even when the vacancy rate in Sinsa-dong in southern Seoul — once one of the busiest commercial districts — has hit 18 percent.
Park’s sense of urgency is partly understandable. Over the last two years under the liberal government, the median price of apartments in Seoul has jumped 45 percent to 880 million won ($752,780), a 45 percent hike. The price gains could accelerate once landlords receive compensation funds of 40 trillion won for yielding their land on sites for suburban development. Watching the upward spiral in home values in Seoul has been agonizing for people without homes or living outside of Seoul.
The 17 previous measures, which all had been regulatory through the means of financing, taxing and supply cuts only pushed prices higher on expectations for further gains due to a shortage of supplies. The market is a living organism. People wish to live in new homes, not worn-out ones. They want to move to better neighborhoods. If supplies are reduced, prices go up. That’s common sense.
The government has only made matters worse by adding fuel to the soaring housing prices. It must moderate the rise in ownership tax and reduce the levy on sales so that more supplies can come to the market. It also must vow to increase supply. The Lee Myung-bak administration helped tame the high prices of Seoul apartments by building affordable apartments in southern Seoul. Even if it requires more time, the government must let the market decide the flow to calm and normalize it.
JoongAng Ilbo, Dec. 17, Page 34