The wrong prescriptionA year has passed since a heavily packaged set of bombshell real estate measures took effect. The measures called for heavier levies on gains from real estate trade made by owners of multiple homes in areas with expensive property prices like Seoul, and toughened loan requirements to subscribe to new apartment offerings.
Minister of Land, Infrastructure and Transport Kim Hyun-mee claimed success during her report to the National Assembly last month. She pointed to benign numbers — the modest gain of 0.47 percent in average home prices across the nation in the first half of the year, hovering below the 0.61 percent average rise over the last five years. But her information is misleading. Apartment prices in Seoul jumped 6.8 percent over a year, higher than the 4.7 percent gain in the previous year. Prices soared 12.8 percent in a redevelopment district of Songpa, southern Seoul, and 14.4 percent in Bundang, a wealthy neighborhood in Seongnam, Gyeonggi province. In the meantime, housing prices outside of the capital area fell 2.1 percent. In short, the polarization in home values has only grown.
Prices of apartments in popular neighborhoods in Seoul and Bundang have gone up because the rich now prefer to have a single expensive property instead of owning multiple homes subject to heavy taxes. Neighborhoods are eagerly sought because of their relative superiority in education and transportation infrastructure. The price goes up because demand far exceeds supply. Market results do not take an expert to foresee. Last year’s real estate measures have entirely been focused on containing speculative demand and were unaccompanied by efforts to increase supply in needy locations.
The slowdown in construction supplies also hurt jobs. The Construction & Economy Research Institute of Korea estimated that the number of unemployed in the construction industry would be cut by 24,000 in the second half of the year and 320,000 jobs would be lost in the field over the next five years due to the ongoing slowdown.
To stabilize home prices, redevelopment restrictions in highly-sought neighborhoods should be eased to increase supply. Without supply-end measures, taxes alone cannot bring lasting stability to the housing market.
JoongAng Sunday, Aug. 4-5, Page 34