[Editorial] Government and Ruling Party Responsible for Shaking August 31 Measures

The August 31 Comprehensive Real Estate Measures, which a government senior official bragged as “Only ghosts will be able to go through it,” is not working in the actual market. The government’s ruling party pushed through the related legislation in the end of last year, just as it had intended, but the housing prices of Gangnam, Seoul, and some Seoul metropolitan areas are rising. In contrast, in some areas such as Gangbuk in Seoul, people who need to urgently move cannot because there are virtually no real estate transactions. Last week, the government passed a proposal to award medals to government workers who created the August 31 measures at the national affairs meeting, but it has now become a laughingstock.

With the measures becoming ineffective, the Ministry of Construction and Transportation pointed out apartments subject to reconstruction as the culprit of rising housing prices, and it attempted to partially take away the approval authorization for reconstruction from local governments. However, the judgment on floor space index or on how high the apartment should go up should remain flexible according to the local conditions. The central government’s attempt to seize such tasks runs opposite to the Roh Moo-hyun government’s calls for “vitalization of local autonomy.”

The notion of stabilizing housing prices and holding speculation through regulations on floor space index of reconstruction apartments itself is shortsighted. The realistic theory that loosening height regulations on reconstruction apartments in popular areas, hence increasing supply in order to stabilize housing prizes, is more persuasive.

The government should first of all look directly at the side effects and the aftermath caused by the August 31 measures. By expanding subjects to comprehensive real estate taxes, housing offered for sale have virtually disappeared. The vague prediction that heavy taxation pressure would make people sell real estates went astray. Due to the shortage of supply, people expect to fetch higher prices for real estate, and with heavy transfer income taxes, people think they will be better off not selling rather than paying transfer income taxes by selling. The current government has implemented about 20 measures drawn from boards, without seeing such market mentality, which all failed to be effective for a long period.

Even the August 31 measures, which the government boasted as being the final answer to all real estate measures, have failed in its target area of Gangnam, Seoul, and resulted in only aggravating the sense of deprivation and making lives more difficult for people in other areas. Thereupon, the government turned its problems to local autonomous authorities, claiming that the approval authority for reconstruction was the main problem, but the fundamental problem lies in the government’s policy of ignoring market principles. The government should dismiss the real estate issue as a tool to draw socio-political divisions, and re-review the issue according to market principles.