The Illusion Created by Rising Home Prices and Falling Currency Value

The average price of an apartment in Seoul has surpassed KRW 1.2 billion. The government and financial authorities voice concerns about “rising home prices” day after day and continue to pour out various regulatory policies, but the real essence of the problem lies elsewhere. It is not that home prices have risen, but that the value of money has fallen.

“Rising home prices” does not mean that real estate itself has become more valuable. Looking at the amount of money released into the market over the same period reveals a completely different picture. As of April 2025, Korea’s broad money supply (M2) reached KRW 4,249 trillion, the highest level on record, up 5.8% from a year earlier. The essence of the issue is inflation caused by an increase in the money supply.

The new government’s supplementary budget, worth KRW 32 trillion, is also a key driver of the current rise in real estate prices. To finance this supplementary budget, the government decided to issue KRW 19.8 trillion in deficit-financing government bonds. In other words, the state is borrowing money to distribute it to the public. These bonds will ultimately be purchased by the Bank of Korea, which is effectively the same as supplying new money to the market.

At the same time, the Bank of Korea is continuously cutting the base interest rate, from 3.5% in July 2024 to 2.5% in July 2025, for a total reduction of 1 percentage point over one year. This, too, increases the amount of money circulating in the market.

The result of these policies is clear. When there is more money in the market, the value of money falls. We call this inflation. The rise in real estate prices is precisely a result of this inflation.

It is not that the house itself has become more valuable. It is simply that more money is now needed to buy the same house. It is the same principle as needing more money to buy the same pack of ramen when consumer prices rise.

Claiming that it would stop rising real estate prices, the government banned mortgage loans of more than KRW 600 million and completely prohibited loans for those who own two or more homes. But this has only worsened the problem.

Ordinary working people, who dreamed of buying a home even if it meant taking out a loan, have been excluded from the market altogether. Meanwhile, the wealthy, flush with cash, have instead gained favorable buying opportunities. In the end, the real estate market has become “a game only for the cash-rich.”

An irony is unfolding: the more money is released in the name of restoring people’s livelihoods, the more real estate prices rise, and the harder it becomes for ordinary people to buy a home. The fundamental solution to rising home prices is not stronger regulation, but stabilizing the value of money. The government should adjust money supply in line with the real economic growth rate and restrain increases in fiscal spending.

Prices are a core means by which the market conveys information. Rising real estate prices signal that demand in a given area exceeds supply, which naturally induces an increase in supply. When the government artificially suppresses these price signals, the market’s autonomous adjustment mechanism is paralyzed.

As long as liquidity in the market continues to increase, rising prices of real assets, including real estate, are unavoidable. The true solution is to build a sound monetary system and allow autonomous adjustment based on the principles of the market economy.

Ensuring that the public has a fair opportunity to build assets—this should be the true goal of policy.

Hea-lim Park

Senior Research Fellow, Center for Free Enterprise (CFE)

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Original title: 집값 상승, 화폐 가치 하락이 만든 착시 현상

Author: Hea-lim Park

Date: 2025-08-13

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=press&idx=27974