The real estate blues
The author is an economic news editor of the JoongAng Ilbo.
As a recent saying goes, there are two types of people in Korea: those with a house and those without. The Moon Jae-in administration’s real estate policies are so controversial that they always seem to be the lead topic in any social group of middle-aged adults. Conversations often start with the simple question, “Do you own a house?” and spiral onward from there. In particular, young people, including college students and those who have just entered the workforce, have started joining the real estate debate, signifying the enormity of the issue and how much of a concern housing has become for all.
The goal of real estate policy under any administrations is to stabilize skyrocketing housing prices in the Seoul metropolitan area. To reach that goal, the government normally tries to supply more apartments or curb speculative demand in the market — or blends both strategies. The Moon administration has been going full steam with the latter method, assuming that current levels of supply are enough to match the demand. But that’s not true.
Demand for houses in and around Seoul has surged in recent years as more people from outside the area flock to the capital and as the number of single-member households grows.
Past administrations have tried to solve the real estate conundrum by targeting Seoul’s affluent Gangnam area and raising real estate taxes to make it less appealing to own a house there. Since 2018, the Moon administration has raised the assessed value of apartments each year and dramatically lifted real estate and transaction taxes each time it announces a new set of measures to curb speculative buying. The government also attempted to divide the people into the haves and have-nots to justify its logic that those living in expensive apartments must pay more taxes than others.
But nothing went as planned. Each time the government announced a new set of real estate measures, housing prices went up to unprecedented levels. When the government regulated Seoul’s wealthy southern districts of Gangnam, Seocho, Songpa and Gangdong, housing prices in the northern districts of Mapo, Yongsan and Seongdong all shot up. After the government regulated the three northen districts, housing prices in Nowon, Dobong and Gangbuk districts also rose, followed by Suwon, Yongin and Seongnam cities in Gyeonggi. It did not stop there. Housing prices outside the Seoul metropolitan area also rose .
The Moon administration failed in real estate policy because it approached the issue like a game of Whack-a-Mole, patching up each failure by imposing more regulations on other areas. Measures that began in Seoul have now spread to most of the Seoul metropolitan area. As real estate and transaction taxes have gone up, new restrictions on apartment loans have come into place, stifling both those with and without homes.
The public is outraged over the government’s real estate measures. People with a house are upset that they have to pay so much in taxes. The number of households whose property tax burden reached the maximum limit of 30 percent this year just because their homes are worth more than 600 million won ($500,700) has increased to 576,294, from 40,541 households in 2017. People without a house, who waited for the government to follow through on its promise to stabilize the real estate market, are also depressed that they have no hope to buy a home.
Each time the government announces a new plan to push housing prices down, the market responds in the opposite direction, eventually leading the government to mend its previous polices over and over. The Moon administration belatedly announced a plan to increase housing supply, but talks about lifting greenbelt restrictions in Seoul only created even more confusion.
Mistrust in government policies has induced the general public to resist taxation. In times of a pandemic, people have taken to the internet to vent their frustration at the government’s quick fixes, uploading angry petitions to the Blue House website. A chief characteristic of the online, contactless world is that public opinion can easily lean toward a certain direction and become part of the mainstream thought.
Authorities must enhance communication with the public and work side-by-side to draw a long-term blueprint for the real estate market.
The administration can never gain public trust if it refuses to change course.