The statement to the nation announced by Deputy Prime Minster for Economic Affairs Hong Nam-ki Wednesday had no new measures to speak of to curb soaring housing prices.
To sum up, housing supply is sufficient but popular expectation for housing prices to keep soaring, speculative demand and illegal transactions have instigated price hikes. So the government is going to keep suppressing those market-disrupting factors.
Hong said that not only the government but also all of the people should make efforts to stabilize the market. Housing prices skyrocketed due to government policies but the government holds the public responsible. The statement only highlighted the government’s inability to figure out effective solutions.
Of course, market-distorting irregularities stemming from speculation must be rooted out. People became impatient to buy houses even by borrowing money, out of belief that housing prices will keep soaring. It is hard to deny that such impetuosity accelerated the ascent of housing prices. There is an element of truth in the course of action to manage household loans tightly.
However, different measures taken on more than 20 occasions so far under the Moon Jae-in administration proved to be disastrous.
According to housing prices data compiled by KB Kookmin Bank, it took less than a year for the nationwide median price of apartments to top 500 million won ($434,000) after reaching 400 million won. In Seoul, the average sales price of small apartments -- where the exclusive dwelling area is less than 60 square meters -- surpassed 800 million won.
The same is true of jeonse prices that have a direct influence on the life of the masses without their own homes. The average jeonse price of Seoul apartments is 634 million won this month, up 135 million won from a year earlier. The year-to-year increase is 3.8 times as much as that for the previous year.
The problem started with excessive regulations. Skyrocketing jeonse prices are a case in point.
Jeonse prices were directly influenced by the three house lease laws legislated by the ruling Democratic Party of Korea. Once tenants are given free rein to renew two-year jeonse lease once, jeonse supply shrank, jeonse prices shot up and legal disputes over lease renewal proliferated. The party and the administration asked for trouble by messing up a jeonse market that had functioned well.
Despite severe side effects of the house lease laws, the party is currently toying with ways to regulate the market more tightly. It is reportedly considering extending the jeonse period over which existing tenants have priority from four years to six or eight years and restricting jeonse price increase for new tenants. These are absurd ideas that infringe on private property rights and screw up free market mechanisms.
Considering that the government repeats a hollow pledge that ended in failure time after time, it is questionable if its distorted view of the market is the root cause of the problem.
The government and the ruling party seem to negate the solid fact that human desire for a better life and more profits is the main driver of the market economy. They appear to have vilified the natural desire as if it is the root of speculation.
If their numerous measures failed to produce intended effects, they should review what went wrong with the measures and rethink its basic view of the market.
Generally, people want to live in a larger and better house and make a profit if possible. Sometimes such desires come into conflict. Sometimes they are harmonized. That is the market mechanism. The first thing they have to do is to accept this and then help the market function flawlessly through an invisible hand. The government must stop blaming people and lift excessive anti-market regulations.
By Korea Herald (
koreaherald@heraldcorp.com)
