[Editorial] Soaring Land Prices and Wrong Government Measures

Land prices are skyrocketing, as if deriding government measures. The Ministry of Construction and Transportation announced this year’s average month-on-month growth of land prices was 0.22 percent in January, 0.18 percent in February, 0.34 percent in March, 0.52 percent in April, 0.56 percent in May, and 0.79 percent in June.

The growth rate set a new record every month instead of stabilizing. This led to a disruption in the housing supply stemming from difficulty in securing land for housing and raw material price hikes, the slow building of plants due to increasing investment burdens, and the widening gap between the rich and poor, shaking the basis for a stable revitalization of the overall economy.

It is the participatory government that fueled land price hike. The surge in land prices is only natural given that the government poured “speculation materials,” such as the administrative city, the corporate city, the Free Economic Zone, and the relocation of public corporations into the economy when the interest rate was low and the amount of floating money was estimated at more than 400 trillion won.

The government is striving to address the problem that it produced by designating speculative areas and land transaction permission areas, which have been largely unsuccessful. The designation of speculative areas works to the opposite effect, fueling the spread of speculation. As developing areas are designated as speculative areas, demands are concentrated in surrounding areas. This, in turn, raises land prices in broader areas, which is called a “balloon effect.” The government and the ruling party plan to introduce a development impact fee and strengthen the real estate holding tax, which gives rise to concerns over the possible side effect of a transfer of prices rather than a stabilization of prices.

When the government begins to pay compensation for land which was affected by its loose land development plan, land prices are highly likely to go up further. The government is expected to pay an additional 50 trillion won in compensation from next year to 2012, after giving out 16 trillion won last year and this year.

Aggregate land prices exceeded 2,000 trillion won, up from 1,500 trillion won in 2003. It is not national wealth but a burden on the economy that increased 500 trillion won over the past two years. It is the cost that companies which want to build plants and the public who wants to own a house will have to bear. The review of the possible adoption of the public concept of land ownership is also far from a logical action. The government is attempting to evade its responsibility for shaking land prices with such a measure designed to restrict people’s property rights.

First of all, the government should prioritize various development projects and adjust the pace of their implementation if it is to stabilize land prices. If it believes that it cannot do that because of the local elections of next year, it is the public who will suffer the most.