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A phony ‘war’

Real estate policy should be based on scientific analysis. In Korea, it’s pure ideology.
June 30,2017
There is a famous story about misconceptions in statistics. Johns Hopkins University, founded in 1876, did not admit women for a long time. When it did 40 years ago, there was a report in the first year that 33.3 percent of the women admitted married faculty members during that year. Some of the old guard of the school became alarmed and demanded admission of women be stopped. The figures were correct, but nevertheless misleading. Only three women were admitted that first year. One married a professor.

I thought of that story after hearing the inaugural speech of Kim Hyun-mee, the new minister of land, infrastructure and transport. On her first day, Kim declared a “war” against real estate speculators. She pointed to speculative demand as being behind the recent spike in housing prices. She cited two pieces of data. The first was a 53 percent on-year jump in their purchase of additional residences by people owning more than five homes in four districts in south Seoul — Gangnam, Seocho, Songpa and Gangdong — in the previous month. The second was a 54 percent surge in home purchases by people aged 29 or younger. The stats were used to back Kim’s claim that speculators were buying homes in the names of their children.

The figures are correct, but do not accurately reflect the reality. Residential transactions in the four southern Seoul districts totaled 3,997 in May. Of them, 98 were made by people owning more than five homes and 134 by people under 29. But the shares stopped at 2.5 percent and 3.3 percent of the total trade, respectively.

There may be two factors behind Kim’s arguments. She may have innocently believed in the figures. The former lawmaker is new to land, infrastructure and transport affairs. She said she knows what it’s like to be without one’s own home. She also may not have had time to be familiar with her work. Or she could have been calculating in her comments — drawing a line between the rich and ordinary people to find an excuse for a clampdown on speculation.

Ignorance can’t be helped. If the error in judgment was intentional, we have a serious problem. The government could cause as much trouble as the last liberal administration under President Roh Moo-hyun. It ended up sabotaging the housing market.

There is a clearer reason behind soaring apartment prices in southern Seoul. Supply is short in Seoul and abundant in other places. Apartment supplies in the four southern Seoul districts are lacking. Apartment units awaiting redevelopment have been heavily regulated by the previous government. Along with the supply shortage, fears of more regulations under a new government, ample liquidity from long years of low interest rates, and demand for refurbished apartments have fanned prices of homes in redevelopment-targeted neighborhoods.

Structural problems cannot be solved through simple solutions. Housing policy should aim to improve housing conditions and stabilize the market. When home prices go too high, young people cannot afford to buy. When they go down too sharply, the primary income for retirees would be reduced. As homes make up 73.6 percent of household assets, a sharp devaluation could shake the economy.

There are structural problems affecting the real estate market, meaning supplies and price discrepancies by region. An overdose of prescriptions could generate side effects. The market often does not respond as desired by the government. It hardly pays attention to what the government says and does. There were 23 real estate measures during the five years under President Lee Myung-bak and 18 during the four years of President Park Geun-hye.

The government learned in the Roh Moo-hyun days that strong rhetoric or action doesn’t necessarily work on the real estate market. Kim Soon-hyun, who was Roh’s senior secretary for social affairs and the architect of a tough property tax, later admitted there was no simple solution to housing problems.

Policy is most effective when it is simple. But it must not be overly simple. A “war” on speculation is pure political rhetoric.

A former land ministry official observed that real estate policy should be based on scientific analysis. In Korea, it is part of an ideology. Making real estate an ideological issue only worsens social division and conflict.

JoongAng Ilbo, June 29, Page 30

*The author is a columnist of the JoongAng Ilbo.

Yi Jung-jae