[Open Forum] Enough of Real Estate Policy as the "Shower Room Fool"

Cracks Are Appearing Throughout the Moon Jae-in Government’s Real Estate Policy

The government should abandon excessive intervention and leave it to the autonomy of the market

Everyone has probably been a “fool in the shower” at least once. You turn on the water to take a shower, but it comes out too cold, so you turn the faucet toward hot. Then it becomes too hot, and you end up wrestling with the shower for a while without being able to wash. American economist Milton Friedman (1912–2006) used this expression to describe how excessive shifts in government policy can amplify economic fluctuations, calling it like a “fool in the shower.”

This “fool in the shower” phenomenon can often be seen in Korea as well. A prime example is real estate policy, now at the center of controversy. The current government directly manages real estate supply and demand by regulating property transactions and by reducing or expanding housing supply.

Looking back at roughly 20 years of real estate policy, there has never been a time when the government completely took its hands off housing supply. The Roh Moo-hyun government repeatedly rolled out anti-speculation policies and shrank housing supply, while the Lee Myung-bak government eased real estate regulations and expanded housing supply again. As housing prices then fell, the Park Geun-hye government reduced land supply, the foundation of housing supply. The Moon Jae-in government also strengthened its policy stance of suppressing supply. And now it says it will once again implement real estate policies aimed at increasing supply.

Housing prices, which sometimes surge sharply and at other times remain depressed for long periods, are the result of the government excessively turning the faucet of housing supply on and off, as if alternating between hot and cold baths. In effect, the government is doing to the public what only a fool in the shower would do.

It is also questionable whether what the Moon Jae-in government calls increasing supply is real supply at all. What people need is “a home of their own.” But the government presents public rental housing as the solution. This may amount to “fake supply” that merely imitates the appearance of a solution. In the end, people are struggling with soaring housing prices, let alone owning a home.

In the jeonse market as well, the government enacted legislation intended to protect tenants by setting the standard jeonse contract period at four years and capping annual increases in monthly rent and lease deposits at 5%. Yet it is obvious that such measures will only reduce the supply of jeonse housing that actually helps ordinary people and increase monthly rentals instead. As expected, jeonse prices continued to rise. Apartment prices in Seoul’s three Gangnam districts even rose by more than 60%. It is the worst jeonse crisis ever. Laws said to have been made for ordinary people have, in the end, only burdened them further.

This is the result of the government abandoning its proper role and interfering excessively in the market. The government’s original role is to strengthen and support the market’s functioning so that businesses can provide an appropriate level of supply. What the current government is doing are matters that should be voluntarily handled by the parties to transactions in the market. The government must now stop intervening.

Minkyung Park, Intern Researcher, Center for Free Enterprise (CFE)

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Original title: [자유발언대] '샤워실의 바보' 된 부동산 정책, 이젠 그만

Author: Min-gyeong Park

Date: 2021-02-11

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=free_opinion&pn=12&idx=23505