[Opinion] Failed Real Estate Policy

The Pangyo New Town Project that was originally initiated to stabilize house prices in uptown areas like Gangnam-gu, Seocho-gu, and Songpa-gu and Bundang-gu (Seongnam City) is ironically sparking house price inflation now. The government egalitarians, ignoring increasing market demand for larger apartments over 40 pyeong (a pyeong equals to 3.3 square meters), pushed its plan of making a new town for the middle class by building small and middle-sized apartment houses. The government also stressed its strong intention not to allow the wealthy to dominate the Pangyo new town with comfortable residential conditions. However, such ignorance has ended up causing hike in the price of over-40 pyeong houses in these areas.

This is a fiasco of the current government policy initiatives, which was once sought to narrow the house price gaps between the haves and the have-nots. However, sharp house price hikes in particular areas are the result. In fact, one apartment house located in Apgujeong-dong, Gangnam-gu, which was priced at 600 million won in 1987 increased to 800 million won in 2002. Since the house price only increased by 200 million over 15 years, the past administrations during this period (Roh Tae-woo administration and Kim Young-sam, and Kim Dae-jung administration) succeeded in stabilizing apartment house price to a certain degree. However, for three years of the Roh administration, the price has soared by 1.5 billion won, and the current price is as much as 2.3 billion won now.

The price of a 44-pyeong apartment house in the Pangyo new town that was announced recently is up to 848 million won, which is almost the same as the market price of apartment houses located in Bundang. As a result, the price of apartment houses in Bundang, which were announced as the bubble price by the government, is proving to be the real market price. The government promised to make the Pangyo new town a residence for middle class and common people. However, there are few common people who can bear such high house prices. The government also announced that it will take actions to have the house price in Gangnam and Bundang areas go down by 30 percent. If this measure is materialized, the house owners in Pangyo new town would also lose a lot of money (Pangyo is located near Bundang). Also, if the government lowers the price, the wealthy owners of house in this new town would enjoy a windfall gain. The Pangyo new town project is coming as a white elephant to the Roh administration now.

On December 20, 2002, when President Roh Moo-hyun was elected as a new president, he said that, “I will concentrate on improving economic condition of middle class by stabilizing house prices and commodities prices.” Convinced with such remarks, one newspaper reporter sold his house and left to other countries to work as a correspondent three years ago. This reporter, however, wasn’t able to buy the house he sold three years ago when he came back to Korea. Many people who applied to the new projects with belief that the government’s real estate policies will work out would feel regret again because of the government’s disappointing actions. The Roh administration should know that it is its turn to lose something important.

Hwang Ho-taek, Editorial Writer, hthwang@donga.com