Real Estate Policies by Politicians Who Ignore History and Experience

There is intense controversy surrounding the government’s and the Seoul city government’s recent moves on real estate policy. In February, the Ministry of Land, Infrastructure and Transport and the Seoul Metropolitan Government lifted the designation of Jamsil, Samseong, Daechi, and Cheongdam as Land Transaction Permit Zones. Then, just as anyone could have expected, apartment sale prices in Gangnam’s three districts rose sharply in March. Yet, apparently startled by this, the government and the Seoul city government expanded and redesignated Gangnam, Seocho, Songpa, and Yongsan as Land Transaction Permit Zones. Their response made it seem as though they had never anticipated this at all. Moreover, what had previously been designated at the neighborhood (dong) level was, for the first time, expanded and bundled together at the district (gu) level. Just one month after lifting the regulation, they responded with even harsher regulation.

A Land Transaction Permit Zone refers to an area designated for a certain period by the Ministry of Land, Infrastructure and Transport or by a provincial or metropolitan government head when real estate prices are surging, speculation is rampant, or there is concern that such conditions may emerge. First introduced in December 1978, the system had become largely nominal after the foreign exchange crisis and the global financial crisis, but in the 2020s it began once again to be applied even in central Seoul, including large apartment complexes. This system—whose logic is, “If you want to buy or sell, get the government’s permission,” and “A public official will decide whether you are qualified to live there”—is fundamentally an anti-market, anti-liberal, socialist system that severely infringes upon and restricts the exercise of private property rights and individual freedom, and it ought to be abolished. Yet after lifting it—raising the question of why they lifted it in the first place and what they were even thinking—they are now expanding and reinstating it.

As noted earlier, anyone could have foreseen that apartment prices would rise sharply once Land Transaction Permit Zone designations were lifted. When a floodgate that had been forcibly held shut is opened, it is only natural that torrents will rush through for a time. It is absurd enough that the government and the Seoul city government could not accept this obvious reality and hurriedly moved to expand and redesignate the zones. Equally absurd is the response of so-called “economic experts,” who denounce the lifting of the regulation as a “policy failure” because housing prices became unstable after the regulation was eased. The Land Transaction Permit System itself is fundamentally a mistaken policy and therefore one that is bound to fail. To call the phenomena that appear in the course of normalizing what had been distorted a “policy failure” is nonsense. What is more, even experts and media outlets that usually advocate being “pro-market” are now speaking with one voice. It was the great economist Mises who called such people “useful idiots.” Lenin was not the only one to speak of useful idiots who greatly assist the construction of socialism. There are also “useful idiots” who normally proclaim themselves pro-market but, without even realizing it, end up lending support to socialist and control-oriented policies.

As I have said repeatedly, real estate problems can never be solved through control and repression. On the contrary, such measures only continue to make the problem worse. Historically and empirically, it is difficult to find precedents where control and repression solved such problems. By contrast, there are many precedents in which market-economy approaches worked. A simple example is the famine that broke out in Bengal in 18th-century India. At the time, the government cracked down on agricultural traders and speculators and controlled the price of rice. The result was that countless people starved to death. But when famine struck India again in the 19th century, the opposite approach was taken: the market was allowed to function, and the result was likewise the opposite.

When a revolt broke out in Antwerp under Spanish rule in the 16th century, the Spanish government imposed a blockade with the aim of starving the rebels into submission. As food prices soared, smuggling took place despite the risk of death, breaking through Spain’s blockade, and the rebels in Antwerp survived. But the Antwerp authorities, stepping in to solve the food shortage, imposed price ceilings on food and strictly punished violations. As a result, the incentive disappeared for traders to risk their lives to break through Spain’s blockade and bring in food, and food supplies plunged. In the end, Antwerp had no choice but to surrender to Spain because of the food shortage.

There are countless such historical and empirical examples. There is no need to look far. What are the realities of housing in North Korea, which claims to “guarantee one home” for every citizen, and of medical care in North Korea, which claims to “guarantee access to healthcare” for everyone? Such cases historically and empirically demonstrate that economic problems can never be solved through regulation, control, and repression while ignoring economic principles and shutting down the market. And yet, looking at the government’s and the Seoul city government’s conduct this time—lifting the Land Transaction Permit Zone designation only to hurriedly expand and redesignate it—it is hard not to think they are simply turning a blind eye to all of these countless historical and empirical facts.

Of course, under a democratic system, it is difficult for politicians to ignore public opinion when it favors control and regulation. The free-market economist Thomas Sowell has said that while ignoring public opinion is no easy matter, “politicians must stake their political lives on taking the necessary measures.” Is that not why we distinguish between statesmen and mere politicians? If a politician turns a blind eye even to historical and empirical facts and remains fixated only on the currents of public opinion, regardless of what the outcome may be, then there is no better word for such a person than a political hack.

Hyukchul Kwon (Director, Free Market Institute; Economics)

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Original title: 역사도 경험도 ‘나 몰라라’ 하는 정치꾼들의 부동산 정책

Author: Hyeok-cheol Kwon

Date: 2025-03-26

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=column&pn=1&idx=27432