[Desk Column] Market Intervention or Market Abandonment?

On the last day of July 2020, our legislative system opened a new chapter. The amendment to the Housing Lease Protection Act, which included the Jeonse and monthly rent price ceiling system and the right to request contract renewal?completely overturning the order of the Jeonse and monthly rent market?was submitted to the National Assembly's Legislation and Judiciary Committee, passed the plenary session, went through the Cabinet meeting, and was promulgated and enforced in exactly three days. In an era of parliamentary democracy, not dictatorship, it is almost unprecedented for a bill affecting the entire nation to be processed so swiftly. What made the government and ruling party so urgent?

Perhaps this situation was foreseen from the beginning. "(Omitted) If it were due to supply shortage, there would be many real demand buyers. The proportion of home purchases by non-homeowners and single-homeowners is negative. Who showed an increasing trend? People owning three or more houses." This is an excerpt from the inauguration speech of Kim Hyun-mi, Minister of Land, Infrastructure and Transport, in June 2017. She declared an all-out war by pointing to 'multi-homeowners' as the cause of rising house prices.

What needs to be revisited here is the housing market trend at that time. In the first half of that year, the Korea Real Estate Board's housing sales price index (this index is an official government statistic directly cited by Minister Kim in the National Assembly standing committee) rose from 97.1 to 98.5, an increase of about 1.4%. Although there were regional differences, overall, there was no sharp price fluctuation in the housing market. Recently, Minister Kim claimed that the supply shortage was the fault of the previous administration, but between the lines of her inauguration speech, the message rather reads as 'supply is sufficient, but prices rise due to speculation.' It is a point that inevitably raises questions about why Minister Kim declared a housing price war as her first statement upon taking office.

The successive real estate measures naturally targeted multi-homeowners. As the measures continued, the tax burdens related to housing ownership and disposal that multi-homeowners had to bear increased sharply. The government's logic was that if multi-homeowners could not endure this and disposed of their houses, the supply would increase and house prices would stabilize. However, instead of curbing house prices, the measures stirred up prices not only in Seoul and the metropolitan area but also in provincial regions. In this process, a large number of young people jumped into home buying. This was the result of a spreading sense of crisis that they had to buy a house by pulling together loans amid soaring prices. Then the government labeled even the home purchases of young non-homeowners as 'gap investment,' identifying them as another speculative force.

Recently, government policy officials have frequently expressed apologies. This is the exact opposite of the confident declarations made until the June 17 real estate measures, when they assured that house prices could be controlled. Is it a coincidence? Around this time, public opinion polls showed a sharp drop in President Moon Jae-in's approval rating. Most polls cited 'failure of real estate policy' as the reason for the decline.

From then on, real estate policy resembles a runaway train without brakes. As the ruling party, the Democratic Party of Korea, took the lead in policy, a multitude of previously taboo, competing measures have been unleashed. This led to the unimpeded passage of the three lease laws. During this process, the Ministry of Justice and the Ministry of Land, Infrastructure and Transport, which had opposed the introduction of this system each time it was proposed?arguing it would cause side effects such as a sharp rise in Jeonse prices?remained silent. On the contrary, they reversed their stance 180 degrees, claiming that this system would stabilize the unstable market.

The political rhetoric regarding real estate has now gone beyond limits. There are calls to "recover 100% of real estate unearned income" on the grounds that people do not buy houses without profit, and even statements that "people who buy and sell houses to make a profit should be treated as criminals." These are claims made by a metropolitan local government head with a population of 13 million and a current ruling party member of the National Assembly.

At this point, it is no longer market intervention. It is blatant real estate politics aimed at covering up policy failures even if it means abolishing the market. How far will this go? The fact that the end is unknown is even more frightening.