President Moon Jae-in’s administration has gone further in its fruitless efforts to curb soaring home prices by tightening regulations without increasing supply in preferred residential areas.
On Tuesday, the Finance Ministry and other related government agencies announced a set of measures to rein in the rise in housing prices for the 18th time since the administration took office in May 2017.
The steps unveiled included stricter rules on lending to home purchasers, expanded application of a presale price cap for newly built apartments and a hike in property taxes on owners of expensive and multiple homes.
These tougher regulations may help hold down home prices for a short period of time. As shown in previous cases, however, toughening regulations without taking measures to increase housing supply cannot be expected to stabilize home prices.
The most controversial part of the latest regulatory moves was tightened restrictions on mortgage loans.
Home-backed loans will be entirely banned when buying a house worth more than 1.5 billion won ($1.28 million) in “speculative” areas. The loan-to-value ratio for the purchase of a home priced from 900 million won to 1.5 billion won will be cut to 20 percent from the current 40 percent.
These measures, which took effect Wednesday, have not only brought confusion to lenders and home purchasers, but also sparked criticism that they infringe upon private property rights. A lawyer filed a petition to the Constitutional Court, claiming the excessive restrictions on mortgage loans go against the basic law that guarantees individuals and corporations rights to engage in free economic activity.
Finance Minister Hong Nam-ki, who doubles as deputy prime minister for economic affairs, said Tuesday the government would take stronger steps next year should the latest set of measures fail to stabilize home prices.
His pledge shows that the Moon administration has learned no lesson from its policy failure.
Home prices in Seoul have soared 40 percent over the past 2 1/2 years despite the numerous measures it has taken in that period. This sharp price hike has stemmed from the anti-market policy focused on curbing demand without increasing supply, which has fueled expectations that housing prices will continue to rise.
It is common sense that a failure in policy leads a government to make efforts to find what has gone wrong and redress the failed policy. But the Moon administration is trying to cover policy failures with tougher regulations.
This obstinate stance that denies the possibility of committing fallacy is characteristic of the way the administration has handled a range of policy issues.
Further distorting the approach to property prices movement is that Moon and his aides have been dealing with the matter from a viewpoint of political interests rather than economic logic.
They have been preoccupied with dealing disadvantages to owners of high-priced and multiple homes, apparently hoping this will boost popular support for the liberal government.
To their embarrassment, restrictive measures taken to that effect have pushed up home prices particularly in Seoul and the vicinity, deepening the sense of relative deprivation among the less fortunate.
The surge in home prices could make many undecided voters turn their back against the ruling party in the parliamentary elections slated for April 15.
The latest measures show that the Moon government is desperate to hold down home prices even at the risk of paralyzing the property market in the runup to the elections.
On the same day the measures were announced, Cheong Wa Dae advised its senior officials to sell their homes barring one each in the Seoul metropolitan area. Presidential chief of staff Noh Young-min said it was necessary for ranking Cheong Wa Dae officials to set an example in connection with the government’s efforts to stabilize the housing market.
The move seems aimed at preventing voter sentiment from further aggravating ahead of the elections. A recent inquiry by a civic group showed that a dozen senior presidential aides owned two or more homes in Seoul and the vicinity, the values of which have soared since the launch of the Moon administration.
It is apparent that blanket regulations coupled with show-off gestures cannot stabilize home prices in the long run. Not long after the elections, upward pressure on home prices may go out of control.
Homeless working-class households will be pushed out of Seoul with owners of houses subject to heightened property taxes compelled to cut spending.
The Korean economy, which is struggling to cope with a range of downside risks, can no longer afford to withstand a property market chaos caused by the government.