[Takryucheongron] Consistent Price Regulation... Need to Shift to 'Supply'

On the 20th, the government announced its 19th real estate measure. This measure is based on the premise that the recent localized overheating of the housing market in the metropolitan area is due to speculative demand, and by blocking this, the government aims to manage the housing market stably. In particular, since the December 16th measure last year, Seoul housing prices have shown a rapid stabilization trend, but it was judged that the price increase range is expanding mainly in areas with development benefits such as the Shinbundang Line in Gyeonggi Province. The government maintained the existing adjusted areas including Paldal-gu in Suwon-si, Giheung and Suji-gu in Yongin-si, and Seongnam-si, and additionally included Yeongtong, Gwonsun, and Jangan-gu in Suwon-si, Manan-gu in Anyang-si, and Uiwang-si as adjusted areas. This is a much reduced intensity and scope compared to what most experts predicted before the announcement.

Until now, because the government had the will to strongly regulate the real estate market, most experts expected that the existing adjusted areas would be upgraded to speculative overheating districts, and that the southwestern Gyeonggi areas such as Dongtan in Hwaseong-si, Osan, Pyeongtaek, and Siheung-si might also be regulated. In particular, since the upward trend continues in the northeastern Gyeonggi areas such as Guri, Namyangju, and Goyang-si, there was speculation about the possibility of expanding regulations. Looking at the current status of these areas, the Dongtan Station area, once called a "ghost town" for unsold units, now has apartment sale prices exceeding 1 billion KRW for 85㎡ (exclusive area). Siheung-si also has prices ranging from 500 million to 600 million KRW. Pyeongtaek's Godeok district is priced similarly at 500 million to 600 million KRW, and apartments in Goyang's Samsong district and Guri-si have surpassed 700 million to 800 million KRW, with some even reaching 1 billion KRW. Namyangju is no exception, with apartments priced between 600 million and 700 million KRW, and even areas around Paju Unjeong Station have apartments in the 400 million KRW range, indicating an upward trend throughout Gyeonggi Province.

However, this measure is weaker and more limited in scope than expected. How should this be interpreted? It raises suspicion that the government and the ruling party reduced the scope of regulations at the final decision stage ahead of the April 15 general election. Alternatively, it may be a cautious measure considering the economic contraction caused by the spread of the novel coronavirus infection (COVID-19).

Nevertheless, it is hard to understand. In the case of Seoul, as has been the case so far, a much wider area would have been subject to stronger regulatory measures. The problem lies after the announcement of the 19th measure. Minimizing the regulated areas may create another balloon effect.

The government's housing market regulations may help stabilize the market in the short term, but ultimately they reduce housing transactions or polarize prices. Furthermore, the stronger the government's regulatory intensity becomes, the more the market develops resistance, and future government regulatory policies may not be effective like a virus. When housing supply is insufficient and demand increases, prices rise; conversely, when supply is abundant and demand decreases, prices fall. Prices are determined by the law of supply and demand. However, the government consistently pursues policies that regulate prices and suppress demand. Once housing prices rise, they do not easily fall. The government must introduce appropriate real estate measures before prices rise.

Currently, the government's housing market policy regulates prices and suppresses demand rather than increasing supply. As a result, a balloon effect is occurring in metropolitan areas outside Seoul where housing is not scarce, and there is a risk of spreading to local areas as well. The government should respect the law of supply and demand while soothing the market rather than implementing regulatory policies that control prices to stabilize the market.

In particular, policies to increase housing supply in Seoul are necessary. Additionally, measures should be introduced to prevent abundant liquidity funds from remaining in the real estate market due to low interest rates. Policies that try to lead the market will not succeed.

Kwon Dae-jung, Professor of Real Estate Studies, Myongji University