[Editorial] A Magic Bullet for Real Estate Bubble?

President Roh said on October 3 that at any cost, the government will cool down the overheated real estate market. Roh also said that if all the measures fail, the government is willing to take more extreme steps. There is no doubt that stabilizing market price and fixing unfair resource distribution through preventing real estate speculation are listed on the top of national agenda.

However, the phrase ‘at any cost’ is somewhat concerning. Every economic policy has two faces, effect and cost. Previous experiences tell us it is highly possible that working level officials will back the President’s remark by releasing quick fix and populist solutions.

To date, the government unveiled more than twenty countermeasures to cope with the overheated housing market. In particular, the countermeasure released on September 5 was so extreme that it raised controversy over property rights infringement. At that time, the editorial questioned whether it would have a long-term impact on the market. The concern comes true. Not only the September 5 measure, but also most of countermeasures since 2001 sang the same old song.

Sometimes quick fixes may work. But misusing them can cause serious side effects. Rising prices on Gangnam apartments after the September 5 announcement is a vivid example. This kind of policy also can put the public in confusion about economic principles or encourage people to consider tax resistance.

Measures ‘at any cost’ can bring more serious problems. For example, raising interest rates may worsen household deficit and shrink investment. The overheated market will go burst. Consequently, it will end up with an economic crisis.

Discordance between economy stimulus and real estate policies put the policies in a dilemma. Assessing the missteps made in the policies, the government has to come up with fundamental and consistent measures to encourage investors to put their money in more productive markets.