Advice for the new president centers on property policy
He will have a lot on his plate, in particular a number of problems inherited from the previous administration.
One of the biggest challenges will be real estate. President Moon Jae-in admitted that his biggest policy failure was in his management of the property market, and his successor will have to clean up the mess.
Despite rolling out nearly 30 real estate policies, the Moon government failed to stabilize housing prices and instead inspired a mad scramble for apartments.
Three tenant-protection laws actually had the opposite effect as landlords increased prices ahead of the legislation.
Other challenges include those related to higher spending and the need to reform the national pension.
Some economists say that one of Moon's biggest mistake was his belief that the government could control the markets.
Real estate professors and economists say the next government should be focused on making policies more predictable.
The following is advice for the succeeding administration from: Kim Kyung-min, Seoul National University professor of urban engineering and real estate; Woo Seok-hun, Sungkyul University economics professor; Yoo Hyun-joon, Hongik University architecture professor; and John Lee, Meritz Asset Management CEO.
Q. What do you think about the administration's policies?
Kim Kyung-min: First, the administration has been ignorant about market mechanisms. Despite rolling out numerous policies, many worked against the market, and this caused harm to individuals. Secondly, the people responsible for the policies were hypocrites. Even the president's chief of staff owned more than one housing unit. The person that was responsible for legislation designed to protect tenants raised the rent of the apartment that he owned. While they themselves acted according to the market, the policies that they created did not.
Woo Seok-hun: Because of the increase in housing prices, the gap in asset ownership has widened.
Yoo Hyun-joon: The government built housing units in areas that didn't need them and tried to relocate the people to those neighborhoods. People make economic decisions own their own, but the government tried to force people to live according to government advice. Because of the forceful nature, the policies failed to work.
John Lee: The government failed to earn the trust of the market in the financial area. Regaining trust is important. Unlike any other sector, Korean finance still hasn't reached the level of developed countries. There is a need to build an economic system where massive amounts of money flows into the stock market.
Q. What would be the solution to regional and real estate gaps?
Kim: When housing prices go up, the asset gap between people significantly widens. It's hard to narrow the gap only with their monthly paychecks. The new government needs to create policies where people in the middle and lower income groups can benefit. Government policy should allow people in these group to be able to rent houses at an appropriate rent.
Most of the country's housing policies are targeted towards increasing housing ownership not suppressing housing supply.
Policies should be targeted at long-term support in finance as well as increasing supply.
People should be able to conduct their economic activities with a long-term plan. If the government lowers the loan-to-value ratio from 80 percent to 60 percent because housing prices jumped, this will allow only the rich to buy housing units.
Yoo: The new government needs to increase supply in neighborhoods where it is needed. Recently on social media, there was a huge buzz over a rundown single-room apartment whose monthly rent was 250,000 won. One wonders whether the existence of such apartments in the middle of Seoul is the result of an excessive suppression of supply.
Yet, when the need for supply is mentioned, the government tries to solve the issue by building several million units with taxes that are paid for by the people through pubic developers such as LH and SH. The new government should throw out such a way of thinking.
Kim: Supplying 2.5 million units is unrealistic. The housing units promised by the candidates are mostly government-leased housing.
SH over the past 30 years has supplied 310,000 units. Each year they supply roughly 10,000 units on average.
Half of the country's population lives in the greater Seoul area. If 1 million units out of the 2.5 million are to be built in the greater Seoul area, a minimum of 200,000 units will be built in Seoul.
That means SH has to build 200,000 units within five years, which is impossible.
And if half of the 2.5 million units are to be built outside of the greater Seoul area, real estate prices in the provincial areas will collapse.
Since 2020, the provincial areas have been building quite a number of apartments.
There is a need to control the number of apartments supplied while monitoring the market.
I'm not saying we shouldn't supply units, but the new government should send out a signal and ease the anxiety of people by offering numbers that are realistic.
Yoo: Equally important as the number of housing units promised is the diversity of the housing supplied. Currently the housing units that are supplied are too uniform.
It's real estate totalitarianism.
This is because there are too few suppliers.
Woo: When the government makes real estate measures, it mostly focuses first on Gangnam, then Seoul and then the neighboring Gyeonggi and Incheon. However, half of the population lives outside of these areas.
I hope the new government approaches real estate policies as an extension to regional economic policies, such as how government uses fiscal policies that are different to those of the greater Seoul area or reflecting the different level of support for regional economies in its real estate policies.
This would help prevent the extinction of the regional economies.
Q. Can people in their 20s and 30s become rich?
Lee: In order to solve the imbalance of income and wealth, policies should allow young people to easily build their financial assets. Equally important are tax benefits.
While the investors should individually take responsibility for their investment decisions, the country should help investors to have trust that investing is safe.
Woo: Most young people don't own an apartment. So they invest in stock and cryptocurrencies.
Kim: Last year among the total number of real estate transactions made, 40 percent were by people that were in their 20s and 30s. Most of them purchased the housing units with loans.
They are at risk when the real estate market falls.
The government needs to keep developing refinancing programs. For young people, the interest rates on loans should be lowered or a fixed interest should be offered.
Q. There has been a lot of discussion about the Covid-19 emergency relief through supplementary budgets.
Woo: There have been numerous supplementary budgets created, and yet the support is still made with rough estimates. The government needs to be accurate in how much is to be distributed and exactly where.
While the damage to small shop owners is huge, they aren't the only ones.
It would be effective if the support is delivered to the tourism industry, the aviation industry and culture businesses.
Disruption caused by viruses happens every three to five years, and we can expect another virus situation. These issues should not be politicized too much.
We need to create a social agreement on how to help those affected by the pandemic and follow through accordingly.
Q. How should the national pension be reformed?
Woo: When there are no elections, there is an agreement on the need to improve the national pension fund, which is depleting, little by little.
But after winning the election, they want to avoid pension reform.
Our population is changing. And it will be too late if we try to fix the national pension fund once it dries up.
We need to fix the areas that need fixing even if we have to suffer some losses.
We seriously have to start thinking of merging the separate pensions, such as the public servant's pension and the national pension fund.
We have to also think of other ways to include those that currently don't have jobs but are willing to subscribe.
Lee: The most important factor for the national pension fund should be its independence. It is not right for a government department to manage such massive investments, such as the national pension fund.
Its independence should be guaranteed without meddling from anyone else.
It is also odd that there is a limit to the tenure of the person responsible for the investment of the national pension fund.
Q. What do you want from the next president?
Kim: Real estate in a capitalistic society is the biggest commodity that a person as an individual can own.
The next president should target housing welfare to the middle and lower income classes with the understanding of the market.
An era where the government has led in leased apartments is coming to an end.
We have to acknowledge that it is time for private companies to enter the housing lease market.
While private companies should be allowed to build lease apartments, the government's responsibility should be preventing private companies from making excessive profits.
The president has to also think about how to improve financial products such as REITs so that lease apartments built by private companies can be managed long-term.
Yoo: The president should understand the basic instinct of people wanting to own their own home and not fight it. And through this understanding, real estate market policies should be created.
Not all demand should be labeled as a speculative force.
Woo: Korea's economic indicators are fine. But when you look at it more closely, consumer prices are rising while monthly paychecks aren't rising as fast. Housing prices have surged excessively.
Wages should increase as much as the rate in which consumer prices have gone up.
But there is a sentiment to keep wages down, which will affect people in vulnerable jobs.
Our country is heading towards an income per capita of $40,000.
Agreements could be reached on economics separate from political issues.
BY KIM TAE-HO [firstname.lastname@example.org]