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Forget about Gangnam

The government must ask itself whether it wants to help the poor or hurt the wealthy.
Jan 12,2018
The success of public policy hinges on its direction and speed. This is particularly so with the economy. Let’s picture a car on its way from Seoul to the southern port city of Busan. In theory, the car can arrive in an hour and half at the speed of 300 kilometers (186 miles) per hour. But in reality, that cannot happen. Unless they are mad, drivers would not try it because they know that they will get caught by police for speeding or kill themselves in an accident, or that their car will have engine trouble before it gets to the destination. Therefore, it is much wiser and safer for them to stick to the expressway driving limit of 100 kilometers even though it will take longer.

In another example, it does not make a slugger better by swinging fast. He would most likely strike out if he swings randomly. Control is essential in batting. Moreover, he should be able to read the ball’s direction and speed well. It is no use swinging left at a ball that veers towards the right.

The government has been fighting a losing battle against the market from the beginning of the year. Raising the hourly minimum wage by 16.4 percent has been like driving a car at 300 kilometers per hour. If it does not shift gears, the government is hardly likely to arrive at its destination of income-led growth. If it does not slow down, it can devastate 5.7 million self-employed businesses, strip low wage-earners of their jobs, or wreck public finances by compensating for the negative consequences of the policy with tax money.

In real estate policy, the government erred both in direction and speed. It has set the wrong goals from the start. It presumed that if it could rein in apartment prices in southern Seoul, that would send ripple effects to northern Seoul, the capital area, and the rest of the country. But the dogma of Gangnam District, southern Seoul — that if apartment prices rise in the posh area, it helps raise real estate prices in other parts of the country — no longer stands. Home prices in Gangnam have long been moving separately from the rest of the country. The past government even encouraged debt-financed home purchases by setting Gangnam as an example.

But the measure ended up worsening home price discrepancies in the nation. The incumbent government will face the same defeat. The house-rich will get richer. Fighting them won’t relieve the broader population.

Then there is another misleading conception about Gangnam homes. It is believed that home prices in southern Seoul will never come down. But under the government of President Lee Myung-bak, apartment prices in three Gangnam districts fell 6.7 percent to 12.7 percent. During the same period, home prices in Daegu and other places soared. When home supplies increase and urban development is carried out in other regions, home prices in southern Seoul also fall. The government is barking up the wrong tree by entirely focusing on Gangnam to stabilize housing prices.

A preoccupation with Gangnam is meaningless. The country won’t be ruined if the Gangnam area is overly stuffed with the rich. There are 300,000 apartments in the three Gangnam districts — or 2 percent of all homes in the nation. Rich neighborhoods exist everywhere. Like penthouses in New York, Hong Kong, Shanghai and Tokyo, the apartments in Gangnam have become the exceptional category. Samsung Electronics is the only stock whose value per share tops 2 million won ($1,872). They can be envied. But a government is better off tending to the broader population instead of trying to humble the rich.

The government is said to be considering a heavier property tax on multiple home owners or even single landlords of expensive houses. Before deciding on extra taxes, the government must get its priorities straight. It must decide whether it wishes to slam the rich in Gangnam or supply affordable homes to the common people.

The government must ask itself whether it wants to help the poor or hurt the wealthy. It cannot make an extra-base hit if it cannot hit the ball in the right direction. If it keeps its current direction, it will end up further lifting the value of homes in southern Seoul. The public will only suspect it is intent on moving in that direction because many in the Blue House own multiple homes and live in southern Seoul.

JoongAng Ilbo, Jan. 11, Page 30

*The author is a columnist of the JoongAng Ilbo.

Yi Jung-jae