[Opinion] The Dilemma of Easing Reconstruction Regulations and Real Estate Policy

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The government announced that it will allow reconstruction projects to commence without safety inspections. It is also pushing to abolish the heavy taxation on multiple homeowners. Easing reconstruction regulations could stimulate urban housing supply by revitalizing reconstruction projects. However, concerns have been raised that this might fuel the real estate market. While such worries are natural, the government likely does not wish for deregulation to lead to rising real estate prices.

The current administration came to power due to the previous government's failure in real estate policy. If deregulation is pushed too aggressively and causes housing prices to overheat as a backlash, public sentiment will quickly turn. Every government aims for market stability in real estate policy. Failure to stabilize the market is due to policy shortcomings, not intentional design.

Real estate policy typically faces an unavoidable dilemma. A real estate market where prices jump overnight is undesirable. As of last year, buying a house in Seoul requires saving an entire monthly salary for 15 years without spending a single penny. This time period increased by one year over the past year. Stability in real estate prices cannot be abandoned.

However, expecting market stability while severely contracting the housing market has widespread negative effects. It can even impact the livelihoods of construction workers from lower-income groups. Moreover, the real estate project financing (PF) issue is an urgent problem. As of the third quarter of last year, outstanding loans in construction and real estate sectors amounted to 608.5 trillion won. Regardless of elections, the government cannot ignore the instability in the construction market, which could adversely affect the overall economy. The struggling construction market needs transaction revitalization. Stability in real estate prices and transaction activation are conflicting policy goals. The government, which cannot forgo either, must revitalize the housing market while simultaneously stabilizing housing prices.

Policy ultimately involves choosing by prioritizing among various alternatives. Even when policy goals conflict, choices must be made. When conflicting policy goals must be achieved simultaneously, failure is not solely due to flawed policies.

In policy decision theory, dilemma situations inherently contain causes of policy failure. Therefore, policy measures in dilemma situations inevitably become a combination of policies involving multiple goals and means. Although the construction market is frozen, prematurely stimulating it risks encouraging speculation. Conversely, allowing the real estate market to crash to a collapse level is unacceptable. Sequential policy combinations are unavoidable. The crucial factor is the timing of policy implementation. Depending on timing and circumstances, priorities must be frequently adjusted and policy measures modified accordingly. Even if the direction is correct, mistimed actions can lead to poor outcomes. Thus, the key point is not whether easing reconstruction regulations is the right direction, but whether now is the appropriate time to loosen regulations. By emphasizing deregulation, the government appears to have judged that transaction revitalization is currently more important than housing stability.

However, the market responds that now, when profitability is critical in reconstruction projects, loosening regulations is largely meaningless. In fact, even if procedures are simplified, rapid project progress is difficult if the market is sluggish. The feasibility is questionable. Removing safety inspections to advance reconstruction schedules is not a housing stability measure for the housing-poor. Even with policy combinations, pursuing conflicting policies simultaneously is problematic. The government, on one hand, abolished the price ceiling system to help construction companies raise prices, while on the other hand, demanded discounts on sale prices. One of these was likely a mistake. The government's announced 2024 economic policy direction includes strengthening support for housing for lower-income groups as one of its goals.

Kim Sang-cheol, Economic Commentator

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