Get serious about housingWatching how ridiculously high rents cause pain to the working class and young people, we cannot but resent the past government for having wasted a golden opportunity to stabilize the supply in the market. If former President Lee Myung-bak had the farsightedness to increase the public housing supply, the current rent crisis could have been avoided.
The timing could not have been better. During his five-year tenure, people generally condoned the idea of easing green belt zone restrictions for urban development. Land prices were stable due to the slump in the real estate market. Construction of mass-scale public housing for rental units could have aided the economy. The previous Roh Moo-hyun government had already changed the direction of the housing policy. It left prices up to the private sector and market, while the government concentrated on the public sector for social welfare. Roh said he would like to rent out a public housing unit when he retired.
But when Lee took office, the housing policy returned to its old ways. His government decided to build affordable homes and sell them at 20 percent to 30 percent discounts to low-income families. Rentable public housing plans were forgotten. The housing market came to a standstill as families waited to bid for the cheaper public units. The development complex in Segok-dong in a green belt zone in southern Seoul symbolized the disastrous failure of the government’s housing policy.
Under the slogan of stabilizing housing for the working class, the government sold luxurious apartments of 101 square meters (1,087 square feet) and 114 square meters at prices ranging from 700 million won ($603,000) to 800 million won. Prices of these homes have gone up by millions of won, and people are breaking the contract rules and selling them ahead of their required tenure. If the government proceeded with the plan to increase affordable rent supply and used some of the exorbitant spending on the four-rivers restoration project on rental units, housing insecurity could have been eased.
Rent costs, including power and water bills, take up 35 percent of Korean households’ monthly incomes. The ratio has gone up five percentage points in the past five years. The Organization for Economic Cooperation and Development (OECD) advises member countries to come up with public policies to keep the cost burden under 20 percent. If housing costs exceed that threshold, people do not have enough to spend on other necessities and enjoy their lives.
European states consider households whose housing costs exceed 25 percent of their income as house-poor and rent out public housing to them or offer allowances. Americans mostly live in homes where mortgages or rents do not exceed 20 percent of their income. They tend to seek out cheaper rents if housing costs take up more than 25 percent of their income. The United States does not supply public housing, but state governments regulate rent prices.
Korea does nothing to lessen housing costs for the working class. Affordable public housing rental units take up a mere 5.5 percent of total homes. Once they are rented out to people on a priority list - the impoverished and disabled and North Korean defectors - few are left for ordinary people. Public rents account for 20 percent to 30 percent in Europe, and the average ratio is 11.5 percent for OECD members. Nor does Korea regulate rent prices like the United States. The Korean housing market runs entirely on the law of the jungle. Landowners are not entirely to blame. The government has neglected the housing market and let it be run by for-profit enterprises. As a result, tenants live in homes that take up more than a third of their earnings.
It is never too late. President Park Geun-hye’s government must learn from past mistakes and veer the housing policy towards increased public rental units. The private home market has been normalized and showing signs of overheating. Tenants must not be forced to buy homes regardless of their affordability because of the burden of high rents. The largest-ever supply of apartments - 480,000 - has been up for sale this year. Tenants will enter these apartments in two to three years once they are finished. By that time, the country would be nearing the edge of the population cliff due to a thinning working population. The housing market will freeze over again.
The president must keep her promise to supply affordable rental units for 500,000 households within her term. She also should institutionalize the system so that public housing rental units are regularly supplied by incoming governments. The economy cannot be restored nor can Korea join the ranks of truly advanced economies if the people cannot afford or feel secure about their homes.
JoongAng Ilbo, Oct. 8, Page 32
*The author is the head of the JoongAng Ilbo Sisa Media.
by Kim Kwang-ki