[Fact Check] Is Excess Liquidity the Reason House Prices Can't Be Controlled?

Minister Kim Hyun-mi's Response to Government Questions
"Limits to Curbing Rise with Ultra-Low Interest Rates"

Comparison with Major Overseas Countries
Australia's Money Supply Growth Twice as High
Sydney House Price Index Down 1.9%

US Money Supply Growth Over 13%
New York House Prices Stable

Experts: "Korean House Prices More Influenced by Psychology than Liquidity"
Long-Term Supply Measures Needed, Short-Term Rise Due to Supply Expansion Must Be Accepted

Minister of Land, Infrastructure and Transport Kim Hyun-mi attended and responded to the government questioning on politics, diplomacy, unification, and security held at the National Assembly plenary session on the 23rd. [Image source=Yonhap News]

[Asia Economy Reporter Kim Eunbyeol] "Globally, liquidity is oversupplied and the lowest interest rate levels persist, making it difficult to curb the rising phase of (real estate) prices."

This is what Kim Hyunmi, Minister of Land, Infrastructure and Transport, said in response to questions about rising real estate prices during a parliamentary session. Minister Kim stated that various regulatory normalization measures were implemented to control the rise in real estate prices. Part of her statement is correct. The low interest rate trend has already been sustained worldwide, and since March this year, in response to the shock of the COVID-19 pandemic, countries have lowered their benchmark interest rates to near zero and injected liquidity. This was to counter the economic impact of COVID-19. The explanation is that this injected money flowed into real estate investment, driving up housing prices, but when examined by country, liquidity alone cannot be blamed.

According to the Bank of Korea on the 24th, the money supply (M2, average balance) in May was 3,053.9267 trillion KRW, an increase of 35.3716 trillion KRW from the previous month. The Bank of Korea implemented a 'Big Cut' by lowering the benchmark interest rate by 0.50 percentage points in March. Comparing with February's M2 (2,956.7 trillion KRW), the money supply increased by 3.3% over three months. During the same period, the KB Kookmin Bank Seoul Apartment Sales Price Index rose by 1%. It appears as if liquidity drove up housing prices.

However, in other countries that injected money at a much faster pace than Korea, housing prices have either remained flat or even declined over the past three months. The pace of housing price increases, which surged over the past 1-2 years due to the low interest rate trend, is actually slowing down.

Panoramic view of Sydney, Australia.

Australia, which is comparable to Korea in terms of economic scale and openness, currently has a benchmark interest rate of 0.25%. As of May, Australia's M2 was 2.309 trillion AUD (approximately 1,972 trillion KRW), increasing by 6.57% over three months. The liquidity growth rate was twice as fast as Korea's. However, the Sydney House Price Index compiled by CoreLogic was 170.68 as of the 24th (local time), down 1.90% from the previous quarter. The average house price index of five major Australian cities?Sydney, Melbourne, Brisbane, Adelaide, and Perth?also fell by 2.06%. In Australia's case, the recent 'real estate shopping' by wealthy Chinese buyers caused housing prices to surge about 10% last year, so the current decline may be a reaction to that. Nevertheless, the logic that lowering interest rates leads to rising real estate prices seems difficult to support.

The same applies to the United States. The US lowered its benchmark interest rate to zero, and M2 surged by 13.15% over three months until June. However, New York housing prices actually fell. According to US real estate information company Zillow, New York City housing prices remained almost flat during the same period.

Housing price growth in London, UK, is also slower than in Korea. While the Seoul Apartment Sales Price Index rose more than 6% over the past year, housing prices in London, as compiled by Bloomberg, increased by 2.4% over the same period. Considering that similar levels of liquidity (+10%) were injected in both countries over the past year, it is clear that housing prices in Korea are rising faster.

Experts say that while low interest rates have partially influenced Korean housing prices, the main factors are rather ▲the invincible sentiment toward real estate in the Seoul metropolitan area ▲low trust in government policies ▲influx of foreign investors, and these issues need to be addressed. The Korea Research Institute for Construction Industry and the Korean Housing Association stated at last month's 'Housing Markets and Policies in Global Cities' seminar that "advanced foreign countries are shifting toward and continuously pursuing supply expansion policies." Increasing supply in specific areas or starting high-rise apartment developments may cause short-term sharp rises in local real estate prices, but over time, it naturally helps to stabilize housing prices.

This content was produced with the assistance of AI translation services.