[Inside Chodong] Real Estate Policy Must Confront Desire

Real Estate Accounts for 70% of Assets
Highly Sensitive to Policy... A Persistent Challenge for Every Administration

The high level of interest surrounding the new administration's real estate policies stems from the significant impact these policies have on a large portion of assets. Real estate is highly sensitive to government policy. Whether the policy works as intended or triggers a backlash, the market response is usually substantial.

It is natural that people are paying close attention to how the government will set its policy direction. According to the Household Finance and Welfare Survey by Statistics Korea, as of last year, the average household assets in Korea were about 540 million won. Of this, real estate accounted for approximately 380 million won, exceeding 70% of total assets.

In the past, regardless of the administration, real estate policy has generally brought more drawbacks than benefits from the government's perspective. During the Roh Moo-hyun and Moon Jae-in administrations, strong demand-suppression measures were introduced to curb speculation, but in the end, housing prices soared. Under the Lee Myung-bak and Park Geun-hye administrations, the government eased various regulations and encouraged purchases to revive the sluggish market. Although home prices stabilized, it was not because the policies were successful. The calm in housing prices at the time was due to the global financial crisis. Meanwhile, jeonse prices surged, and the sharp increase in household debt during this period became a ticking time bomb for the Korean economy.

In fact, regardless of the political orientation of the administration, the stated aims of real estate policy are similar: to manage housing prices stably and reduce the housing burden for ordinary people. In this sense, real estate policy has always been a source of concern for every administration. This is an inevitable result, given the nature of real estate measures. It takes considerable time for people to actually feel the effects of a new policy.

Housing supply, a representative measure for stabilizing home prices, requires planning, budgeting, permits, construction, and occupancy?making it difficult to complete within a single five-year presidential term. The second-phase new towns, such as Pangyo and Dongtan, which are now relatively established, were projects launched during the Roh Moo-hyun administration. The fact that interests sharply diverge depending on housing type, income level, place of residence, and age is another reason why the government finds it difficult to devise effective measures.

Some criticize President Lee Jaemyung for not presenting concrete real estate pledges during the recent presidential election, arguing that he is neglecting a mountain of pending issues. They claim that, since it is difficult for any measure to be effective, he is simply choosing to ignore the problem. I do not believe this is the case. As governor, President Lee called for strong measures such as the real estate blind trust system and the basic income land tax.

He argued that high-ranking public officials should be allowed to own only essential real estate, such as for residential purposes, to prevent conflicts of interest, and that a tax system should be devised to ensure that all citizens receive an even refund of unearned income generated from real estate. Hajunkyung, a professor at Hanyang University who has been appointed as Senior Secretary for Economic Growth under the Chief Presidential Secretary for Policy, has consistently highlighted real estate issues in his media columns. This suggests that the administration may take an even firmer grip on real estate policy.

In my view, one reason why real estate policies under past Democratic Party administrations faced backlash was that they emphasized normative justification without acknowledging the public's desire to profit. Attempts to break the reality where a small number of owners monopolize the gains from rising land prices have so far ended in failure. Most people prefer to vote for those who increase their own wealth rather than support the "right" policy, and they oppose forces that take away their assets. President Lee's statement that he will enable people to make money from stocks instead of real estate is noteworthy in that it directly addresses this desire. Will the "government of popular sovereignty" be able to break from past patterns? It will not be easy.