[Editorial] Learning from Past Mistakes

The Lee Myung-bak administration has announced real estate measures to revitalize the frozen construction market and revitalize real estate transactions. The key is to promote the sale of unsold new homes in provinces by creating new cities near Incheon and Osan, Gyeonggi Province, by easing regulations on redevelopment and easing transfer taxes on the owners of two or more properties.

Given that new home sales in the provinces are worse than in the Seoul metropolitan area, it is understandable for the government to expand tax benefits for those who buy unsold new apartments. The construction industry expects the new measure cutting the period between buying and selling a home will increase the sales of new apartments in Seoul and vicinity. Sadly absent are new tax measures to facilitate housing transactions in the sluggish capital area. The ruling party will not dare reverse the real estate tax and financial systems made by the former Roh Moo-hyun administration, though worried over criticism that the ruling party favors the rich. Exorbitant taxes must be removed.

The Roh administration announced real estate measures 40 times to contain real estate inflation. When the market was hit by tax bombs including new comprehensive real estate and double transfer taxes, the government declared the real estate market stabilized and praised it as an achievement. The ideology-driven real estate policies, however, were a total failure, pushing up housing prices after the administration gave 87 trillion won in compensation over the past five years by creating an administrative city, innovation cities, and company cities in the name of balanced national development.

The Roh government’s real estate policies not only hurt the rich but also damaged the middle and lower classes. Soaring housing prices in the affluent “bubble seven” areas discouraged the middle class and hurt low income people with higher rents. Even those who needed to buy a home could not buy or sell a home because of sluggish transactions. Moreover, the Roh administration ignored the unsold status of more than 200,000 apartment units, leading to a deep recession in the construction industry and putting low income people out of work.

The core of the Roh administration’s real estate policies was driving a wedge between the people and bashing the rich. There are many things the left-leaning Roh government created by ignoring market principles, and they need to be fixed. The incumbent Lee administration apparently cared much about the new measures to prevent soaring housing prices, but the market seems unsatisfied. What is needed in the new tax law, which will be announced Sept. 1, is a policy that can improve effectiveness while minimizing adverse effects, reflecting on the Roh administration’s real estate policies.