Supply, demand and human nature

Kim Se-yong
The author is a professor of architecture at Korea University and a former president of SH Corp.

The Moon Jae-in administration has added 40,000 residential units per month, including 20,000 in capital region, over the last five years. In terms of completely built-up apartments, housing supply from the government has been larger than any administrations. The amount of housing approved by the government is also the largest after the Park Geun-hye administration. Yet the Moon administration has failed to tame housing prices. Housing prices in the capital region rose at the fastest pace during Moon’s term.

There are many other factors apart from supply — for instance, lush liquidity from low interest rates, imbalance in supply and demand and market insecurity — behind the spike in prices. The frenzied purchase of apartments is the result of price hikes, not the cause of them. Liquidity also existed during past governments. Some people attribute the price jump to record-low interest rates, but housing prices could not be controlled even after interest rates went up.

Others attribute it to a rapid increase in single or two-person family units. But family simplification has panned out over the last decade. So why do housing prices stay sky-high regardless of ample supply and the pre-opening of the third New Town project? The answer could be found in the undersubscribed new apartments offering for newlyweds in Gwacheon, Gyeonggi Province.

A four-member apartment used to be the standard family unit. The first New Town project in 1991 targeted four-member families. The breadwinners endured two to three-hour commuting hours every day to provide decent housing environment for their families. By 2012, half the population lived alone or in two-member units. Six years later, the share exceeded 60 percent.

Four-member family units accounted for less than 20 percent of households last year. Single-person or two-person households have become the standard today. A majority of adults in three-member families do not prefer living in the outskirts of Seoul. Single or two-member families choose to live nearby their workplaces. Newlyweds wishing to have children favor living near their parents.

Instead of wasting time on the roads, people prefer smaller homes in residential areas of the inner city. Singles or couples wish to have meals, shopping, and everyday leisure within the neighborhood. They aspire all-inclusive neighborhoods.

Another big change behind the housing trend comes from living standard and expectations. When Korea’s baby boomers were born in 1961, Korea’s per capita income was $93. It soared to $500 by the time they entered middle school. The first New Town projects in Budang and Ilsan, Gyeonggi in 1991 were completed by the time they turned 30. The third New Town project will be ready to accommodate tenants by 2025. Those turning 30 by then were born in 1995, when Korea’s per capita income was $12,000. When they entered middle school, per capita income passed $20,000.

Young people who grew up in an entirely different environment than their parents have different ideas about housing. Baby boomers can settle for electric fans in place of air conditioners, but the young cannot imagine why. Without any regard for the fundamental differences in the needs of the young, increased supply can hardly help the chronic shortages. The thought that newlyweds would be happy to start from a humble home causes undersubscription in public supply.

Housing problems cannot be solved like in the Olympics —here, building more and faster cannot be a solution. The government — and the housing industry — must meet the needs of the consumers. The young want to live in the city, but the government keeps building new homes in the outskirts of metropolitan cities. Demographic factors, income and expectations in housing have all changed. Just by increasing the supply cannot solve any problem. Housing authorities must seriously reexamine their supply policy this time.
Translation by the Korea JoongAng Daily staff.