[Outlook]Allow housing to fix itself

As of late February, 130,000 new apartments in the country stand unsold. If conditions persist, the number will likely pass 150,000 within the first half of this year. Most people thought the housing market would be revitalized when the new administration took office. The new government hasn’t had a chance to do anything serious about the housing market, so why is the market responding this way?
One area where housing prices have gone up recently is central Seoul, which is packed with small and midsized apartments. Consumers flock to buy these downtown apartments. The reasons can be summarized as follows:
First, as consumers’ purchasing power has dwindled, demand for smaller apartments has increased. Those who already own apartments keep their homes instead of moving to larger ones, or they move to smaller apartments, adding to demand.
Second, since the new administration took office, people expect more apartments in central Seoul to come under renewal projects, in which existing units are torn down and new, larger complexes take their place. People who can’t move to midsized and large apartments on the outskirts of Seoul buy small and midsized ones in central Seoul, expecting these new apartments will be rebuilt and increase in value. As a result, they think they will be able to buy bigger apartments later.
The third reason is a variety of taxes and financial regulations on mid-sized, expensive homes that were in effect during the former administration. Even though a new administration has taken office, housing prices in the so-called “bubble seven” areas, including southern Seoul, have remained relatively low. This is because people still feel it is burdensome to buy and keep midsized and large apartments in these affluent areas. The situation in the housing market is the result of the previous administration’s housing policy, which was meant to stop people from moving to bigger apartments, combined with the new administration’s policy of rebuilding old apartments in downtown Seoul.
So what should the government do to resolve the problem? First, the demand for houses, which is distorted due to government policy, must be normalized. Most of the new, unsold apartments were built before caps were placed on initial sales prices. As builders competed in the luxury apartment market, they built large apartments with higher prices than others in vicinity.
However, the government policy of giving points to those who want to buy new apartments according to their means encourages people with low incomes who don’t own houses to buy these expensive units. But if they wait a little longer, less expensive apartments will come onto the market because they were built when limits were in place for initial sales prices. Therefore, these people will wait, instead of buying expensive homes.
Meanwhile, when those who already have houses want to move to larger apartments or to the outskirts of the city, they face many regulations. They get lower scores when applying to buy new apartments, as they already have houses. Under other regulations, people awarded the right to buy a new apartment can’t get the right to buy another one for a certain period of time.
When people get the right to buy new apartments, they can’t sell them for a certain period of time, and expensive apartments are subject to more regulations on loans and higher holdings taxes.
All of this discourages consumers from buying new apartments. Meanwhile, there is an oversupply of houses in areas outside of Seoul.
The problems can’t be solved with a housing policy aimed at encouraging people who live outside of the metro area and don’t have houses to buy new apartments in downtown Seoul. People living outside the area need to buy houses in the metro area. To resolve the problems, regulations that prevent people from moving to larger apartments or buying more than one home should be lifted. Particularly in the metro area, people should be encouraged to move to larger apartments and to other areas. It should become easier to own multiple houses.
Most people blame apartment suppliers for unsold new apartments as they have built luxurious units without considering market demand. However, the government shares responsibility because it failed to understand demand in the market. The government says that housing prices in certain areas such as northern Seoul are still unstable, so it can’t lift housing regulations. This shows that the government fails to assess the market reality.
Prices are a result of supply and demand. The government must stop fretting about prices and look into supply and demand.
The resolution to problems can be found in the market, the place where the problems arise.

*The writer is a researcher at the Construction and Economy Institute of Korea. She holds a Ph.D in urban planning. Translation by the JoongAng Daily staff.

by Kim Hyun-ah