[Reporter’s Notebook] Are Taxpayer Funds a 'Guarantee Insurance for Unsold Housing'?

[Asia Economy Reporter Ryu Tae-min] "The management conditions of small and medium-sized construction companies with weak financial power are very serious. We urge the government to intervene more actively, such as purchasing unsold housing units."

On the 31st of last month, Jung Won-ju, president of the Korea Housing Construction Association, held a press conference and made this appeal. This came amid concerns about a housing market crisis as the nationwide unsold housing units exceeded 68,000 in the December tally last year. The number surged by more than 10,000 units in just one month, surpassing the 62,000 units that the government had mentioned as a danger threshold. This is why voices from the construction industry are growing louder, saying "the government must take drastic measures before it is too late."

The rapid increase in unsold units is due to a sharp decline in housing demand caused by interest rate hikes and falling house prices, coupled with rising construction costs that pushed up sale prices, eroding the psychology of 'subscription = jackpot.' However, even though the entire industry is facing difficulties, it is questionable whether it is right for the government to intervene and unconditionally support construction companies. While the housing market slowdown caused by rapid interest rate hikes is cited as a factor in the unsold housing crisis, the responsibility of construction companies that indiscriminately built apartments in various local areas without properly assessing demand cannot be overlooked. In fact, more than 85% of the total unsold units are concentrated outside the metropolitan area. High sale prices are also one of the reasons for the unsold units. Complexes supplied at appropriate prices were sold out long ago, even during the recession.

It is a natural proposition in a market economy that companies must take responsibility for their own decisions. Just as they gain corresponding profits when successful, they suffer losses when they fail. The idea that if things go well it is thanks to me, but if not, the government must help, is irresponsible and dangerous. Construction companies have already experienced their greatest boom over the past 3 to 4 years as house prices rose. If, as President Jung said, a company that has been breaking its maximum performance records every year during the boom still complains about lacking financial competitiveness, wouldn't that be an admission of incompetence?

The government's clear stance that it is "not considering at all" purchasing unsold housing units is in the same context. It means that the industry's self-help efforts should come first to resolve unsold units. Premature government intervention could guarantee profits for construction companies with taxpayers' money and encourage moral hazard. Earlier this year, the government already lifted most regulatory areas except for the three Gangnam districts and Yongsan-gu in Seoul to revitalize the sales market, allowed mortgage loans for multi-homeowners, and introduced additional easing measures for loan-to-value (LTV) ratios for single-homeowners. The government is not a 'unsold housing guarantee insurance' for the construction industry.