Back to basics
The author is an editorial writer of the JoongAng Ilbo.
Real estate dominates conversations these days. One sad episode from a family goes like this. In February, a man in his 30s who earns a decent income in a professional field consulted with his parents about buying a home. A big argument between his parents ensued though.
His father opposed. He reasoned that the Moon Jae-in administration planned to raise property ownership and transaction taxes as well as toughen loan regulations. Since the president also vowed to stabilize the market, prices were bound to come down. He advised his son to wait until then.
His mother thought that reasoning was nonsense. She asked, “Did you ever see home prices fall because of government policy?” Still, the son could not ignore his father’s argument. Today, his father can hardly look his son in the eye. Buying a home has become a distant dream as home prices have jumped by hundreds of millions of won, or hundreds of thousand dollars, since then.
Ordinary citizens are the ones suffering from the government’s unfettered — and futile — wrestling with the real estate market. The common feature uniting senior government officials was hypocrisy. Former presidential spokesman Kim Eui-kyeom pocketed a handsome profit by purchasing a lot in Heukseok-dong in Seoul on favorable loan terms before the district was designated for redevelopment even while trumpeting the government’s full-fledged battle with real estate speculation. Ruling Democratic Party (DP) Rep. Kim Hong-gul, son of the late president Kim Dae-jung, showed how one gets super rich through property ownership by reporting 7.6 billion won ($6.3 million) worth of residential units in Gangnam and Seocheo Districts in southern Seoul and Mapo District in northern Seoul. Rep. Lee Kai-ho from the DP owned five residential units under his wife’s name and Rep. Lim Jong-seong was the owner of four houses.
President Moon’s Chief of Staff Noh Young-min urged staffers in the Blue House to keep to one residential home and sell their extra houses. He himself was caught trying to hold onto an expensive apartment in Banpo, southern Seoul, and selling a much cheaper unit in Cheongju, North Chungcheong. Former presidential policy chief Chang Ha-sung irked the public by saying that not everyone needs to live in Gangnam — while his family lived there.
Faced with strong public backlash and sinking approval ratings, the government ordered senior officials to dispose of their extra homes as soon as possible. The DP demanded all members hand in documents on property deals and rent contracts. Even if all of the DP lawmakers and staff at the Blue House and cabinet sell their extra homes, will housing prices come down? Assuming their combined stocks total 1,000 units, the number would be a drop in the bucket given the critical undersupply in the capital. It is bewildering that policymakers are still naïve enough to believe that they can defeat the market.
They must face the reality. No matter how many regulations they impose, the fundamental market principles of supply and demand won’t change. All humans want to live in a comfortable home in a good environment. In his book “Property and Freedom,” Richard Pipes, a professor of history at Harvard University, explains how private ownership has contained the power of the state and driven democracies to thrive in the Western hemisphere. Animals and even small children know the meaning of possessions. One can feel freedom by possessing. Because home is where personal freedoms are protected, possessiveness over homes is strong. The middle class has been built through attachment to homes.
We cannot have our right to property ownership taken away by policymakers who are already house-rich. Increasing affordable and livable housing supplies is the only solution. The government must convert idle space available in Gangnam — where demand never dies — into residential areas and raise the floor area ratio (FAR) when and if it decides to redevelop certain areas. At the same time, the government must elevate traffic and education infrastructure standards in other areas to the level of Gangnam. The capital regions should be developed with appealing social infrastructure. Housing prices will never come down by suppressing demand and raising taxes.