Real Estate Policies of Politicians Who Ignore Both History and Experience

Controversy is raging over the recent real estate policy moves by the central government and the Seoul Metropolitan Government. In February, the Ministry of Land, Infrastructure and Transport and the Seoul city government lifted the designation of land transaction permit zones in the Jamsil, Samsung, Daechi, and Cheongdam areas. As anyone could have predicted, apartment prices in Seoul’s so-called “Gangnam Three Districts” surged sharply in March. Seemingly startled by this outcome, the government and the Seoul city government then expanded and re-designated Gangnam, Seocho, Songpa, and Yongsan districts as land transaction permit zones. Their reaction gives the impression that this development was entirely unexpected. What is more, land transaction permit zones—previously designated at the neighborhood (dong) level—were, for the first time, expanded to cover entire districts (gu). In other words, just one month after lifting regulations, the authorities responded with even harsher restrictions.

A land transaction permit zone refers to an area designated for a fixed period by the Ministry of Land or by provincial and municipal governors in regions where real estate prices are rapidly rising, speculation is rampant, or there is concern that it may become so. First introduced in December 1978, the system fell into disuse after the foreign exchange crisis and the global financial crisis, but in the 2020s it was revived and applied even to central Seoul, including large apartment complexes. This system—which essentially says, “If you want to buy or sell, you must obtain permission from the authorities,” and “A public official will decide whether you are qualified to live here”—is fundamentally anti-market, anti-liberal, and socialist in nature. It severely infringes upon and restricts individual property rights and personal freedom, and therefore should be abolished altogether. Yet after lifting it—raising questions about why and on what grounds the decision was made in the first place—the authorities have now expanded and reinstated it.

As noted earlier, it was entirely predictable that apartment prices would rise sharply once the land transaction permit system was lifted. When water that has been forcibly dammed is released, it is only natural that a torrent will follow for a time. The truly baffling aspect is not only the government’s and Seoul city’s hasty decision to expand and reimpose the regulation, but also the reaction of so-called “economic experts” who criticize the lifting of the regulation as a “policy failure” simply because housing prices became unstable. The land transaction permit system itself is fundamentally flawed policy and therefore destined to fail. To call the normalization process following years of distortion a “policy failure” is logically absurd. Even more troubling is the fact that experts and media outlets that usually profess to be “pro-market” are echoing this criticism. The great economist Ludwig von Mises referred to such figures as “useful idiots.” Lenin was not the only one who believed that there were useful idiots who greatly aided the construction of socialism. There are also “useful idiots” who normally advocate market principles but, often unknowingly, lend support to socialist and interventionist policies.

As has been said repeatedly, real estate problems can never be solved through control and repression. On the contrary, such approaches only make matters worse. Historically and empirically, it is difficult to find examples where control and repression have succeeded. By contrast, there are many cases where market-based solutions have worked. A familiar example comes from 18th-century Bengal in India, where famine struck. The government cracked down on grain traders and speculators and imposed price controls on rice. The result was mass starvation. When famine struck India again in the 19th century, however, the authorities took the opposite approach and left matters to the market—and the outcome was likewise the opposite.

When a rebellion broke out in Antwerp under Spanish rule in the 16th century, the Spanish government imposed a blockade in an attempt to starve the rebels into submission. As food prices soared, smugglers risked their lives to break through the blockade, allowing the rebels to survive. However, the Antwerp authorities, seeking to address food shortages, imposed maximum price controls on food and strictly punished violations. This eliminated the incentive to risk smuggling food through the blockade, supply collapsed, and Antwerp ultimately had no choice but to surrender to Spain due to severe food shortages.

There are countless historical and empirical examples like these. One need not look far. Consider North Korea, which claims to “guarantee one home for every citizen,” and its actual housing conditions—or its promise to “guarantee access to medical care for all,” contrasted with the reality of its healthcare system. These cases historically and empirically demonstrate that economic problems can never be solved through regulation, control, and repression while ignoring basic economic principles and shutting down markets. Yet the government’s and Seoul city’s actions—lifting the land transaction permit designation only to hastily expand and reimpose it—suggest a complete disregard for these abundant historical lessons.

Of course, under a democratic system, it is difficult for politicians to ignore public opinion that favors regulation and control. Free-market economist Thomas Sowell has noted that while it is indeed difficult to go against public sentiment, “politicians must be willing to stake their political careers to take necessary actions.” Is this not precisely why we distinguish between “statesmen” and “political operators”? A politician who ignores historical and empirical facts and focuses solely on following the flow of public opinion, regardless of the consequences, deserves no label other than that of a political operator.

Kwon Hyuk-cheol
Director, Free Market Research Institute / Economist

Korean version: https://www.cfe.org/20250326_27432