Worse than bad policy
The author is an editorial writer of the JoongAng Ilbo.
The government and ruling party have failed in economic policymaking, but they earn awe for turning things in their favor. The median price of an apartment in Seoul was about 600 million won ($500,000) at the time President Moon Jae-in took office in May 2017. It is now above 900 million won. Runaway prices of homes, which have become unobtainable for ordinary people, have become a selling campaign point for the ruling power. The president promised to trot out even stronger measures to bring down home prices no matter what to reinforce his pro-ordinary image. Seoul Mayor Park Won-soon’s campaign for the next presidency went further. He vowed to solve the problem regardless of criticism about the communist approach. The Democratic Party vowed to raise the property ownership tax and deliver affordable homes for the young and newlyweds.
The offering by the main opposition Liberty Korea Party (LKP) pales in comparison. The conservative party promised “market-led liberalism.” Specifically, it proposes permits for redevelopments in Seoul, easing loan regulations and removing of the cap on new apartment prices to bump up supply. It vows the lowering of the property tax and an upward revision to the criteria for expensive homes. Its bottom line is respect to market principles and consumer needs. The rationale for increasing housing supply and easing the burden for the middle class is persuasive, but its action plans are vague.
Prices are bound to go down when supply increases. Turning the theory into a policy is a different matter. A home is a product, but one with an extraordinary future. A policy must take into account of the gap between demand and supply, regional factors and expensiveness.
Housing policy must ensure a smooth procedure from the beginning to the end. The incumbent government has been sloppy because it has ignored the extraordinary factors to achieve its goal of suppressing demand.
The LKP is going entirely the opposite way. It blindly seeks to increase supply. Going the extreme opposite cannot be the answer. The government has flopped in housing policy but its design to curb speculative demand cannot be argued. The colossal liquidity from a protracted low-interest environment and scarce investment options has pushed up housing prices, which gained more impetus due to joining by anxious home-seekers. The LKP’s laissez-faire approach is reminiscent of the past conservative government’s encouragement of debt-financed home purchases through deregulation and eased lending terms.
The LKP would have targeted residents in Gangnam, southern Seoul, and the middle class broadly. It cannot persuade the voters without homes or young people through its outdated classic theory packaged in neoliberalism. Housing policy requires deep study and detailed strategy. It needs to be examined in today’s context, where low growth and interest rates have become the “new normal.” If the bubble in housing prices begins to deflate against a thinning population, the catastrophe could be unimaginable. Spikes in home prices worsen conflict among polarized classes and generations. Immediate measures to ease the burden for the middle class could wreck the bigger picture. An opposition seeking to retrieve governing power should have given more careful and farsighted examination.
What’s worse than a bad policy is inconsistency. People lose hope in housing security because policy is overturned every time a new government is launched. All policies have both upsides and downsides. Under President Roh Moo-hyun, housing prices shot up and trade killed, but tough loan regulations helped to cushion the repercussions from the 2008 financial crisis. President Park Geun-hye liberalized all kinds of regulations to find homes for a greater population, but the move triggered a surge in household loans. Even under a new president, the government must respect the positive policies of the past administrations. LKP chants to stop the recklessness of the liberal government. But its shallow policy raises questions on its winning potential.
JoongAng Ilbo, Jan. 31, Page 30