Don’t repeat the past housing policy fumbles

Housing prices are moving back up. It is not just the apartments in Seoul whose prices have been on the rise for 15 straight weeks. Apartment trades in the close vicinities of Gwacheon and Seongnam in Gyeonggi surged to the highest point in 33 months to push up their value. Some are withdrawing their apartments from the market or demanding higher prices. We may see the sad repeat of the frenzied housing shopping spree under the Moon Jae-in administration due to its draconian regulations.

But the incumbent government is carefree. Land, Infrastructure and Transport Minister Park Sang-woo observed “a slight tilt” in some areas, but disagreed that the real estate market was trending upward. He did not see a spike in housing prices in the likes of past several years due to high interest rates.

Contrary to the minister’s diagnosis, mortgage loans at banks stretched by nearly 27 trillion won ($19.6 billion) in the first half of the year, the steepest rise since the first half of 2021. Expectations for a cut in the benchmark rate are fueling demand in the capital region. The government’s contradicting policies have also played a part in fanning the surge in housing debts.

After announcing the rate freeze at 3.5 percent for the 12th straight session last Thursday, Bank of Korea (BOK) Gov. Rhee Chang-yong highlighted the accelerated pace of growth in housing prices in the capital region in June and July. “Although the central bank cannot control housing prices, the BOK is committed to contain household debt as housing prices can affect debt levels,” he said. “We must not send the wrong signal to the market to trigger housing price inflation.”

But the government moved out of sync with the central bank. The Financial Supervisory Service summoned CEOs of commercial banks earlier this month to put the brakes on their loan offerings, following the surge in mortgage loans in recent months. Yet financial authorities must take responsibility for the alarming loan growth because they extended subsidized loans and stalled the introduction of a stressed debt service ratio (DSR) regulation that imposes a certain level of additional stress rate when calculating the borrower’s DSR and offering new loans.

It is not too late to make amends. If the government does not want to usher the market into the disastrous path of the past administration, it must send clear signals that enough supplies will arrive to prevent hasty purchases. Deputy Prime Minister for Economy Choi Sang-mok promised to bolster the supply pipeline when deemed necessary. But what the market needs to see are actions, not words, as the construction market remains slumped due to high interest rates and raw material prices.