Real estate policy ‘is done’
The author is a columnist of the JoongAng Ilbo.
The only economic area I expected the Moon Jae-in administration to not fail was real estate. People were repeatedly assured they would no longer have to envy homeowners in the posh Gangnam district in Seoul. Former presidential policy chief Kim Soo-hyun had raised the hopes. Kim was the architect of the real estate policy of former President Roh Moo-hyun, who led the battle against runaway housing prices in Gangnam. All real estate pundits said the Moon Jae-in government’s real estate policy depended on Kim. I was advised to read his 2011 book “Real Estate Is Done.”
Kim looked back on why the policy under liberal President Roh had failed and what not to do to avoid the same mistake. He assessed that he had overlooked the strong resistance from conservatives and untamable liquidity. As solutions, he suggested an increase in public and private rents, a stronger property ownership tax, consistent and sustainable policy, flexibility and other convincing measures. He would have been sure of a win this time, especially when the new liberal president enjoyed a whopping 80 percent approval rating shortly after his election. In August 2017, three months after Moon’s inauguration, Kim bypassed the minister in charge of real estate policy to speak on behalf of the new government’s housing policy direction. The gist of his outline was pronouncement of the end of “Gangnam success myth.” Kim declared an end to the skyrocketing housing prices that had weighed on Korean society over the past 40 years.
But those hopes were dashed in a big way. After three years, the battleground looks pitiful for the government. According to a study by the Citizens’ Coalition for Economic Justice, a progressive nongovernmental organization, the median apartment price in Seoul jumped 52 percent to 920 million won ($762,852) from 606 million won over the three years under Moon. The pace of gain overwhelms a 3 percent fall under conservative President Lee Myung-bak and a 29 percent rise under President Park Geun-hye. Homeowners in Seoul became 493 trillion won richer, compared with the gain of 155 trillion won under Park and the loss of 35 trillion won under Lee. The wealth inequality has worsened that much. For instance, it would take 10 years for the top income quintile to buy a home in Seoul — and 72 years for the bottom 20 percent under the Moon administration. Under Lee, it took just six years and 35 years, respectively, and under Park, seven years and 41 years, respectively.
Where has it gone wrong? First of all, the Moon administration has not learned from past mistakes. The government only laid out measures without clear policy guidelines. (A policy should be responsive to the market.) Second, it had no patience. A policy can show effect six months later. But the government trotted out one every one or two months. Even the officials in charge would not have been able to keep up with all 21 measures. Taxes and regulations differed by the owner, region and price. Since it lacked consistency, the confidence in public policy was lost. Third, the government was arrogant. The sheer absence of modesty has been the main cause of the failure in real estate policy. The government was all-knowing about justice and acted as if it could control the market. Even as the staff in the Blue House and government kept theirs, they asked the people to sell their extra or expensive homes. Taxes were increased randomly and residential mobility was restricted.
Untangling the mess is easier said than done. The latest run in apartment prices was foreseeable. Over 100 trillion won of capital has been unleashed over the last three months since the Covid-19 outbreak. Fluid capital is estimated at historic-high of 1,130 trillion won. Apartments in Korea, especially located in Seoul, are blue-chips. As their value is standard and safe, they can be cashable with high returns. They become prioritized investment targets when there are no other options. Lifting regulations on supply won’t immediately solve the problem. The prices will only go up higher. It is best to stick to the textbook theory.
The government at least should be honest. The president has said he was confident of solving real estate problems. If it has erred 21 times, the government at least should stop crying wolf. The people are sick and tired.