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(EDITORIAL from Korea Times on Dec. 2)

All News 07:01 December 02, 2020

Total policy failure
Regulation, heavier taxes cannot stabilize housing prices

A tragic incident took place last Friday in which a man in his 30s committed suicide after stabbing his wife to death. What motivated the killing is unclear. However, police said the tragedy came after the couple, living in a rental apartment in Seoul, quarreled over a plan to buy an apartment. They reportedly were unable to narrow their differences over how to finance the plan amid soaring housing prices.

Some critics put the blame on the government which has so far failed to stabilize the overheated property market. The authorities are not directly responsible for the deaths of the couple, yet they should be held accountable for runaway housing prices, particularly in Seoul and the surrounding metropolitan area.

Now the Moon Jae-in administration should overhaul its property policy. It has so far issued 24 sets of measures since Moon took office in May 2017. But it has only proven that the measures were a total failure. Simply put, the authorities have been waging a losing war.

President Moon and his policymakers have only focused on tightening regulations and imposing heavier taxes on buyers and owners of homes. They should have realized that it is almost impossible to bring the soaring prices under control by just restricting mortgages and raising various taxes, including capital gains, acquisition and property holding taxes.

Policymakers have turned a deaf ear to the side effects of higher taxes. Landlords have been trying hard to pass the rising tax burden on to tenants by raising rents significantly, especially since the ruling party enacted three laws in July to allow tenants to extend their two-year rental contracts by another two years. The laws, however, have made the situation worse, causing an acute shortage of jeonse homes. Jeonse is Korea's unique home leasing system in which tenants pay a lump sum deposit which is returned upon the expiration of their rental contract. Most landlords have begun to put their homes up for monthly rent to earn more amid a record low interest rate.

All those policies the government has adopted are not based on market principles. Policymakers have ignored the law of supply and demand. They have only taken expedient measures such as a reduction in mortgages and heavier taxes. But they have failed to increase the supply of apartments to rein in skyrocketing property prices.

Against this backdrop, apartment prices in Seoul have surged 58 percent over the past three years. In November alone, the prices rose 1.7 percent from the previous month, while rents jumped 2.3 percent, the highest monthly growth since March 2002.

There are no winners benefiting from the ill-conceived government policy. Landlords and tenants are both losers. The term "property blues" is going viral as more and more people are feeling the sense of deprivation and depression arising from runaway home prices and rents.

The government should acknowledge its policy failure and work out market-friendly measures to regain stability in housing prices. Without a drastic policy change, it cannot win a war on property speculation.

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