[Viewpoint] Why Have Housing Prices Gone Crazy, and How Can We Fix It?

Professor Kim Hong-beom, Department of Economics, Gyeongsang National University

Antoine de Saint-Exup?ry, the author of "The Little Prince," was a postal pilot. In his autobiographical novel "Night Flight," he flies through the night sky carrying mail, connecting with the distant twinkling lights of rural villages below. He believed that each light shining from a house carried the various stories of everyday life. A home is a sanctuary for the mind and body that always welcomes and embraces me and my family. A place to live, along with clothes to wear and food to eat, is one of the three basic necessities for human survival.

According to the Citizens' Coalition for Economic Justice (CCEJ), during the three years of the Moon Jae-in administration, the price of a 25-pyeong apartment in Seoul rose by 450 million won, marking the worst increase since the mid-1990s under the Kim Young-sam government. Is this only in Seoul? Houses priced well over 1 billion won are everywhere in the metropolitan area. For an ordinary citizen, even if they save 1 million won every month with great effort, it would take a lifetime (83 years) to accumulate 1 billion won. In short, housing prices have gone crazy.

The rising trend in housing prices is a common phenomenon in major cities worldwide. Over the past 20 years, low interest rates and abundant liquidity in each country have contributed to driving up housing prices. But why, in the past three years, has Seoul alone outpaced major cities like Hong Kong, New York, and Paris in housing price increases?

“Eradicating speculative demand” was the alpha and omega of the Moon Jae-in administration’s housing policy from the moment it took office until now. The government believed that if speculative demand was curbed, the housing market would stabilize. It designated speculative overheating zones, speculative areas, and adjustment target areas separately and strengthened tax and loan regulations on multi-homeowners differentially. It imposed heavy taxes on high-priced homes and suppressed gap investments.

The problem is that such dogmatic regulations actually created market instability and stimulated expectations of rising housing prices, acting as a powerful catalyst for price increases. The bigger issue is that, in an attempt to extinguish the spreading flames, the government recklessly imposed increasingly stronger countermeasures (more powerful and comprehensive regulations). This only caused a vicious cycle of rising housing prices. Each time regulations were tightened, the market’s heightened expectations of price increases pushed housing demand even higher, accelerating the price surge. Now, with the unprecedented tax and loan regulations announced by the government in June and July looming, housing prices and jeonse (long-term lease) prices in Seoul and the metropolitan area are soaring rapidly. Especially with the sudden implementation of the “Three Lease Laws,” market instability has peaked. Today’s panic buying is an absurd chaos caused by the Moon Jae-in administration crushing the market with harsh regulations. Could it be that they are deliberately fueling unsustainable panic buying now, hoping for a sharp reversal into panic selling once liquidity dries up in the future?

Now, a house has become an innocent object that amplifies greed for those who have one and fear for those who do not. The damage from the “three-year war with the market” led by the government has fallen squarely on the people. Regardless of how many houses one owns, whether one has any or not, whether the house is expensive or not, whether one is a speculator or a genuine buyer, no one has escaped heavy taxation on housing ownership and transactions. The market is full of distortions due to patchwork regulations. How should this be resolved?

The market is powerful but not always wise. Over the past three years, the market has responded to the Moon Jae-in administration’s successive regulatory onslaughts with herd behavior and overreactions. This was not the behavior of a wise market but an inevitable consequence of anti-market regulations. If the Moon Jae-in administration truly wants to stabilize housing prices now, it must publicly acknowledge its policy failures. This is the minimum duty to the people and the first step to regaining market trust.

Before it is too late, the Moon Jae-in administration must completely change the game. It must prepare a mid- to long-term policy package that fully considers the seller-favored market characteristics and the incentive structures of market participants. To ease the entrenched expectations of rising housing prices, the government must pour all its policy capabilities into this effort.

Will a “peace” come, where the government gives the market and the people confidence through the right vision and approach, and the market wisely responds in kind?

Kim Hong-beom, Professor of Economics, Gyeongsang National University

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