Housing supply is the issue

Kim Jong-yoon
The author is an editorial writer of the JoongAng Ilbo.

An apartment’s price is determined by the balance between supply and demand. A product’s price goes up when demand exceeds supply. According to the 2017 census, 3.9 million, or 20 percent of all Korean families, live in Seoul. The housing supply ratio is 97.8 percent, which means that there are not enough homes in Seoul to meet the demand.

The supply of apartments has been steadily increasing. By 2022, apartments that can house 358,000 families will be added. Supply will outstrip demand by 1,200 units annually. At this rate, the supply ratio could reach 100 percent soon.

But the problem is not so simple in Seoul, where half of the population lives in rental apartments. Only 49.2 percent of households live in a home they own. This ratio means that there are that many people who own more than one house or who do not necessarily live in Seoul. Half of the residents still dream of living in their own home in Seoul. Yet the rich are still hungry to own more homes, regardless of how many they already own or whether they live outside the capital.

Short-term measures are more urgent. It takes about three to five years to plan, develop and build a new apartment complex. The market moves preemptively. The sale of a single apartment affects the market price and sentiment. According to trades registered with the electronic real estate bulletin for Seoul, there was not a single offer for a small 84.95 square meter (914 square feet) unit in the luxury Acro River Park apartment complex in Banpo-dong, southern Seoul, in March and July. After home prices surged in August, three bids were placed. On Aug. 7, a unit on the 16th floor was sold for 2.67 billion won ($2.37 million). A week later, another unit on the 20th floor was traded for 2.75 billion won. The price went up by nearly $80,000 in just a week.

“Because offerings are scarce in southern Seoul, customers storm the market when new apartments go on sale,” said realtor Park Cheol. Sentiment drives price. Landlords can raise the price because there is plenty of demand. This is how apartment prices in Seoul have become so sky-high. In Gangnam, the owner has the upper hand. According to a price trend published by Kookmin Bank, the bid against tender ratio hovered around 128.5 in the posh district in August. A reading above 100 means there are more buyers than sellers. The ratio was 83.2 in July.

[KIM HOE-RYONG]

Solving the problem is rather simple. Increases to the housing supply will bring down the price. But the government measures did exactly the opposite. They restricted selling. Technically, a landlord who temporarily owns two homes before he or she moves into a new house must sell the existing house within three years to avoid a profit tax on sales. People would want to hold onto the existing house as long as possible when prices are on upturn. The exemption period should come down to two years so that people between houses can shed their existing homes at an earlier date.

The surtaxes on people who own multiple homes also has contributed in disturbing the market. Under the measures announced on Aug. 2, the sales tax went up 10 percentage points on owners of two homes and 20 percentage points on owners of three homes. But an exemption to the new levy was fixed from March to August, so there was not much time for owners to sell their homes. After they were hit with new taxes, they decided to hold on to their properties, resulting in extreme undersupply.

Treatment can work when the diagnosis is correct. Repression should not be the sole measure. It is imperative to encourage homeowners to sell their properties. The government should consider extending the grace period for the surtax. Also, it could normalize the property ownership tax on multiple homeowners, which is too low compared to the Organization for Economic Cooperation and Development average. Increasing the supply for both the short and long term is the key to solving the Seoul housing conundrum.

JoongAng Sunday, Sept. 8-9, Page 34