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The Political Economy of Korean Government Policies on Real Estate

Korea Centre for Free Enterprise, Do-Won Building, 290-20 Dowha-Dong, Mapo-Ku, Seoul, South Korea, kch{at}cfe.org

Kyung-Hwan Kim

Department of Economics, Sogang University, C.P.O. Box 1142, Seoul, South Korea, kyungkim{at}ccs.sogang.ac.kr

This paper investigates the driving forces behind the Korean government's real-estate policy decision-making. In particular, it tries to explain why inefficient and inequitable policies have persisted for so long, and why policy reform has been so sluggish. In order to do this, a few key regulations governing housing supply and land use are described and evaluated. These are the price control on new apartments, control on land-use conversion, green belts and spatial deconcentration policies. Next, it is demonstrated that the standard economic theory of interest-group politics is not appropriate in explaining the behaviour of the government officials in charge of these regulations. It is then suggested that a piecemeal and lukewarm approach to policy reform could be better understood in light of the behaviour of risk-averse government officials taking the political ramifications of their decisions very seriously.

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