Supply is the key

The government may finally be seeing the real estate market with an objective eye. President Moon Jae-in summoned Land, Infrastructure and Transport Minister Kim Hyun-mee and ordered an increase in housing supply. Moon also ordered stronger measures on multiple-home ownership. To the presidential staff, he instructed a revision to the property ownership tax.

The president’s order to increase housing supply could finally fix the flops in his administration’s real estate policy over the last three years. All of the past 21 measures have confused and worsened the market. The median price of apartments in Seoul soared 52 percent over the last three years, more than doubling the 26 percent average increase over the last 10 years under conservative presidents. A supply shortage also fueled rent increases. Rents in some areas jumped 50 percent in two years.

The obsession by the liberal administration, which wanted to include the residential right in the Constitution, has brought about the catastrophe. Minister Kim remained fixed and contended that the real estate measures have so far been working well. Her remarks drew criticism from even left-wing Justice Party head Sim Sang-jeong, as they were insensible to the people suffering from the spike in home value.

The measures so far have failed because they merely aim to suppress demand through restrict redevelopment and loans instead of increasing housing supply. Progressive NGO Citizens’ Coalition for Economic Justice observed the government has ignored the real estate market and market principles based on supply and demand. The government remained stubborn despite repeated advicesfrom experts.

The policy may change now that the president has given a specific order to increase supply. But supply should be increased in areas where demand is high. President Lee Myung-bak’s administration stabilized housing prices after increasing supply in the Gangnam district. Building suburban cities near the capital to add to the total housing stock would not help.

To increase supply in popular districts, aged residential areas should be allowed to be redeveloped. The floor-area-to-lot-space ratio is capped at 300 percent for Seoul residential areas. It should be increased. The ratios in New York and London are over 500 percent. Floor area ratios should be revised and a surcharge can be levied for the profits from the extra space. The government should be creative to increase supply. People want livable homes, not meager space.