[Free Speech Forum] Curb Speculation with ‘Cash Compensation’? … It Also Blocks Homeownership

The government decided to increase the housing supply through its “February 4 Real Estate Measures.” It is a policy the Ministry of Land, Infrastructure and Transport put forward with the intention of securing land for housing supply in major cities nationwide and increasing the housing supply to help young people buy homes of their own. However, the “cash compensation” included in this policy is causing controversy.

The government proposed cash compensation, saying, “If a home purchased after February 4, the date the measures were announced, is included in a redevelopment project, the buyer will not be granted priority rights to apartment allocation and will instead receive cash compensation.” The intention is to ensure that the additional housing supply generated through redevelopment does not end up in the hands of speculators.

However, criticism has been raised that cash compensation interferes with market dynamics. A growing number of people are becoming reluctant to buy homes even for actual occupancy. In areas designated as candidate sites, the real estate market is stagnating. Some areas are even publicly declaring, “Our neighborhood will not even apply for a public maintenance project, so people can buy and sell homes here with peace of mind.”

Another problem is that the market has become unpredictable and unstable. Existing redevelopment and reconstruction projects also imposed restrictions to prevent speculative demand from concentrating. However, the “cash compensation” restriction was imposed at a point when it was impossible to predict which areas would be included in “public direct implementation maintenance projects.” Experts point out that even if priority allocation rights were to be restricted, the rule should at least have been limited to after district designation had been made or to the point when an application for a project modification was filed.

Since the announcement of the February 4 Real Estate Measures, there have been a series of reports that prices for newly built apartments and homes in the Gangnam area have actually risen. This is because demand is increasing in areas where redevelopment is expected not to proceed due to cash compensation.

The government’s real estate policy, which seeks to reduce speculation through regulations and taxes, is moving in a direction different from its intent. Those who ultimately suffer from such policies are not the very wealthy but the middle class, and as the middle class shrinks, the result is worsening polarization. In particular, people who own property in the Gangnam area or newly built real estate have benefited from this policy as well. But the middle class, who dreamed of owning a home, have once again been forced to put that dream on hold.

In this way, cash compensation is discouraging not only speculation but even ordinary transactions. The government needs to think deeply about this issue once again.

The government needs to refrain from regulatory and tax policies that run counter to market logic. The market is most efficient when it is allowed to operate as freely as possible. If the government truly wants to help ordinary people buy homes of their own, policies that ease regulations would be more effective. The government should consider promoting policies that protect property rights rather than regulatory policies that worsen polarization.

Hyojoong Kim, Intern Researcher, Center for Free Enterprise (CFE)

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Original title: [자유발언대] '현금청산'으로 투기 제어? ... ‘내 집 마련’도 막는다

Author: Hyo-jung Kim

Date: 2021-03-26

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=free_opinion&pn=11&idx=23588