Real Estate: Problems if Controlled, Problems if Released... Policy Dilemma

In a situation where one can only borrow 200 million won to buy a house, an increase in loan interest rates merely makes home purchases more difficult and cannot be a fundamental price stabilization measure.

Loan regulations and a contraction in housing construction and supply act as conflicting problems. If housing finance regulations are tightened, supply shrinks, inevitably leading to long-term upward price pressure, meaning there is a lack of practical alternatives besides supply.

In cities with continuous population inflow, supply growth often fails to keep pace with demand growth.

This phenomenon suggests that even with sufficient supply, it is difficult to defend against rising rents if demand increases faster. This is interpreted as a paradoxical outcome of supply.

Hong Kong typically follows a Henry George-style land taxation system. Taxes on labor income and capital income are low, but land taxation is very high.

A significant portion of government revenue comes from land, so rising land prices directly lead to increased government revenue. This land revenue model, inherited from British colonial rule, forces the government to condone rising real estate prices.

This was essentially government acquisition of land at low prices, close to confiscation.

Through the '7-year rule,' the value assessment during land expropriation disregards the development value of the past 7 years. It applies the principle that development activities during that period are meaningless, and land will be purchased at its value from 7 years prior.

This authoritarian approach enabled effective land control and a strategy of dualizing the market economy and public housing market.

Even Singapore abandons government control over the top 10% high-end market, leaving it to market autonomy.

However, Korea tries to control house prices in all segments, leading to a policy dilemma. This draws criticism that Korea is attempting to achieve a goal that even developed countries like Singapore have abandoned, making it unrealistic.

Developers focus on quickly acquiring and developing land by approaching local governments rather than considering actual demand.

This structure led to the misuse of the pre-sale system, resulting in development in areas without real demand and the emergence of ghost cities.

Following China Evergrande Group's default declaration in 2021, its chairman was sentenced to life imprisonment. This ruling was confirmed in a news report three weeks prior, related to Evergrande's default.

This is interpreted as a strong signal of the Chinese government's firm intention to severely punish real estate developers for mismanagement.

Easing loan regulations can serve as a ladder for asset formation, but simultaneously risks exacerbating a surge in land prices and household debt burdens, making mortgages 'debt of death'.

Conversely, tightening loan regulations can contract housing supply and put upward pressure on prices. Whichever policy is used, there is a structural paradox that stimulates house price increases.

Especially in the top 10% of large cities with strict regulations, like San Francisco, supply barely increases, at about 0.4%, no matter how much home prices rise. This decline in supply elasticity accelerates housing price increases.

The speaker referred to cases of increasing housing supply by raising floor area ratio during commercial office redevelopment, pointing out that raising floor area ratio in residential areas is lukewarm due to concerns about preferential treatment. Nevertheless, it is analyzed that there are still many single- and multi-family housing areas suitable for development.

It was suggested that dilapidated single- and multi-family housing areas should be allowed to be redeveloped into mixed-use commercial and residential buildings, and regulations on officetels should also be eased. This could be a way to expand new housing supply and promote urban regeneration.

The author proposes 'moderate land value tax' as a solution for real estate policy. While it's difficult to apply Henry George's single tax model directly, it aims to curb real estate speculation through land value taxation.

Additionally, it is argued that the capital market must grow so that real estate is not the only investment option. However, significant political barriers exist in pursuing such policies due to the strong conflict of interest between homeowner voters and non-homeowners.

The author diagnoses that understanding that the wealth of land differs from other forms of wealth and can cause long-term, fatal damage is the first step in problem-solving. It is emphasized that this issue is universal, as almost no country worldwide has avoided the 'land trap'.

The side effects that arise when pushing extreme policies in one direction must be directly addressed. Caution is urged against a political reality that only offers 'easy and quick solutions,' and a prudent approach is needed to solve complex real estate problems.

This is a rational approach to adjust loans by considering individuals' repayment abilities.

For redevelopment and reconstruction, a plan to minimize conflicts by increasing early consent rates is proposed. Private construction companies, developers, and union members should be granted autonomy in their areas of development by easing regulations.

Simultaneously, it is argued that the public sector should refrain from excessive intervention in the private market or making irresponsible promises, thereby respecting market autonomy.

Publicly offered housing should not become a 'lottery' aimed at speculative profits, the author criticizes. It is proposed that public offerings should include limits on resale profits and restrictions on new home buyers.

Public housing should focus on rental rather than sales to create a cyclical structure. This emphasizes the importance of securing a sustainable public stock to solve youth housing problems.