[비즈한국] The Bank of Korea (BOK) is the command center for South Korea’s monetary policy. Looking at the statements and reports coming from this institution recently, one cannot help but feel serious concern. Contrary to the pride of being a gathering place for the nation's top scholars in the humanities and social sciences, it is showing the typical face of desk-bound administration—completely detached from the actual market and the lives of the people.
From Governor Rhee Chang-yong’s remarks about "creating 10 Seoul National Universities across the provinces" to his absurd conclusion that "people will sell their homes as they age," the policy proposals coming out of the BOK show a significant lack of sense for reality. While claiming that interest rates cannot be lowered because of real estate, they fail to grasp the essence of the real estate problem, and by being obsessed only with figures and data, they fail to understand the decision-making processes and market psychology of actual economic agents.
The biggest problem is a fundamental lack of understanding regarding the real estate market. In March 2023, Governor Rhee stated, "Regarding the theory that real estate is 'too big to fail,' we must consider whether this trend will continue in the future, given factors like an aging population." The logic is simple: people will sell their homes as they get older.
This is a statement that demonstrates a complete misunderstanding of Korea’s real estate market structure. In reality, the elderly are not selling their homes; rather, they are holding onto them tightly to pass them down to their children. Wealthy elderly individuals in areas like Gangnam in Seoul use real estate as a means for wealth accumulation and inheritance, and they do not simply dispose of their homes just because they have reached a certain age.
Governor Rhee has consistently issued warnings to 'Young-geul-jok' (young people who max out loans to buy homes). In October 2023, he said, "Many people buy houses with leverage rather than their own money, and I don't think interest rates will be adjusted quickly to reduce financial burdens," adding, "I am warning you." However, these warnings have no practical effect. The reason 'Young-geul-jok' take on risks to enter the real estate market is that they have no other alternatives. No matter how much the BOK warns, in a situation where there are no stable and profitable investment options other than real estate, people are bound to keep flocking to it.
In September 2025, the Bank of Korea diagnosed that "the degree of slowdown in Seoul apartment price increases following the June 27 real estate measures is more limited than the effects of housing market measures announced during the Moon Jae-in and Yoon Suk-yeol administrations."
This might seem like pointing out the limitations of government policy, but in fact, it is evidence that the BOK itself does not understand the essence of real estate policy. The reason real estate price suppression measures have limited effectiveness is that they fail to address the fundamental problem of supply shortages. Yet, the BOK ignores these structural issues and tries to measure only policy effects in numbers.
The Bank of Korea claims it cannot lower interest rates because of real estate, yet it does not properly understand what this implies. In August 2024, Governor Rhee justified freezing interest rates by saying, "The BOK must not make the mistake of stimulating the psychology of rising real estate prices by supplying excessive liquidity."
However, this is a policy that ultimately holds the entire Korean economy hostage to real estate. If interest rates cannot be lowered because of real estate even while the real economy is stagnant, the policy priorities are reversed. The banking sector benefits the most from keeping interest rates high, as their net interest margins expand, guaranteeing stable profits.
On the other hand, the real economy is suffering from investment contraction and reduced consumption due to high interest rates. The BOK’s postponement of interest rate cuts using real estate as an excuse ultimately results in a policy that protects the banking sector's interests. This is far from the central bank’s original role of supporting economic stability and growth.
The Bank of Korea consistently responds too late. It issues warnings only after real estate prices have risen significantly and considers interest rate cuts only after clear signals of economic recession appear. In July 2025, Governor Rhee stated, "The pace of rising house prices is faster than last year, so we must calm the overheating," but this was an belated realization made after house prices had already soared.
The "creating 10 Seoul National Universities" policy supported by Governor Rhee is a textbook example of desk-bound theory devoid of reality. The idea is to create nine more "Seoul National University-level" colleges by injecting budgets equivalent to SNU into regional flagship universities. However, this idea fails to grasp the essence of educational inequality. Simply increasing budgets does not elevate a university's status. Furthermore, it overlooks the fundamental problem that even if prestigious universities are created in the provinces, graduates will eventually head to Seoul.
The very idea of achieving balanced regional development through "creating 10 Seoul National Universities" distorts the essence of the problem. The cause of regional imbalance is not a lack of educational institutions, but a lack of jobs and infrastructure. While they cite the UC system in California as a model, they overlook the fact that the land size and economic structure of the U.S. and Korea are completely different. In a situation where concentration in the capital region is as extreme as it is in Korea, the problem cannot be solved by simple university decentralization.
The Democratic Party estimates that this policy would require an annual budget of over 3 trillion won. This is an astronomical figure. Not only is securing such a budget unrealistic in the current fiscal situation, but even if it were secured, its effectiveness cannot be guaranteed. What is serious is that this budget is not being spent where it is truly needed. For substantive regional development, transportation infrastructure, industrial complex construction, and startup support are more urgent, but they are obsessed only with increasing university budgets.
In April 2025, the Bank of Korea analyzed the phenomenon of money flooding into real estate through its report, "Structural Causes and Problems of Real Estate Credit Concentration." The report expressed concern that real estate credit accounts for 50% of total private credit. However, this analysis remains superficial. It fails to identify the fundamental reasons why people pour money into real estate. It ignores the realistic judgment that there are no other investment alternatives and that real estate is the safest and most profitable asset.
All the solutions proposed by the Bank of Korea are abstract and lack effectiveness. Measures like "strengthening macroprudential policy" and "restructuring real estate PF" have been tried countless times with limited results. What is actually needed—expanding alternative investments outside of real estate, increasing the supply of rental housing, and implementing strong sanctions to curb speculative demand—are concrete and effective measures that they have failed to propose.
The Bank of Korea worries that real estate concentration "weakens the competitiveness of the financial industry." However, it is the Bank of Korea itself that guarantees stable profits for banks by maintaining high interest rates. The reason banks are satisfied with real estate-backed loans is that the risk is low and profits are stable. It is contradictory to create such a structure and then worry about the competitiveness of the financial industry.
The biggest problem with the Bank of Korea is its belief that the decision-making of economic agents is determined solely by simple figures or policies. In reality, real estate investment decisions are influenced by complex factors such as anxiety about the future, children's education, and the desire for social status. Governor Rhee advises, "Young people should think according to their own capabilities and manage their assets more prudently." However, the reason the younger generation jumps into real estate, even at the risk, is because they have no other options.
The Bank of Korea assumes that all market participants have complete information and make rational decisions. But in reality, there is information asymmetry, which leads to speculative trading or irrational decision-making. In the real estate market in particular, the information gap between experts and the general public is large, and speculative forces exploit this to disrupt the market. Yet, the Bank of Korea ignores this reality and only puts forward analyses that assume all participants are rational.
As the Bank of Korea continues to make statements detached from reality, trust in its policy is falling. Market participants no longer take the BOK’s warnings or policy signals seriously. This is creating a vicious cycle that undermines the effectiveness of monetary policy. No matter how good a policy is, without trust, its effects will inevitably be limited.
The Bank of Korea must no longer remain in an ivory tower. As an institution in charge of economic policy directly linked to the lives of the people, it must keep its feet on the ground. It is time to stop with the "pie-in-the-sky" talk like Governor Rhee’s "creating 10 SNUs" or "people will sell their homes as they age." The solution to the real estate problem does not lie in interest rate adjustments or increased regulation, but in fundamental supply expansion and curbing speculative demand. However, the Bank of Korea is obsessed with superficial analysis and desk-bound theory rather than such essential solutions.
If the Bank of Korea is to truly become an institution for the people, it must face reality and listen to the voices of the public. It needs to make an effort to understand the hearts of people and the psychology of the market—things that cannot be known through figures alone. Only then can it establish effective policies and regain the trust of the people.
Kim Hak-ryul, head of the Smart Tube Real Estate Research Institute, known by the pen name 'Pashong,' served as a team leader at the Real Estate Research Division of Gallup Korea. He manages and hosts the Naver blog 'Pashong’s World Exploration' and the YouTube channel 'StuTV'. His books include 'Rewriting the South Korea Real Estate User Manual (2025)', 'The Power of Gyeonggi-do Real Estate (2024)', 'Absolute Principles of Seoul Real Estate (2023)', 'The Future of Incheon Real Estate (2022)', 'Kim Hak-ryul’s Absolute Principles of Real Estate Investment (2022)', 'South Korea Real Estate Future Map (2021)', and 'From Now On, Only Places That Will Rise, Rise (2020)'.