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To avoid a third housing market failure, Korea’s new government must break with the past

Published: 10 Jun. 2025, 00:04

Lee Chang-moo

The author is a professor of Urban Engineering at Hanyang University.

At a recent gathering, real estate quickly became the focus of conversation. One participant, who had stretched his finances to purchase an apartment in northern Seoul, confidently predicted that prices would rebound. What was notable was that this optimism came even before the Lee Jae-myung administration had revealed its housing policy blueprint. While it remains to be seen whether these hopes will materialize, there has been no shortage of news reports signaling a rebound in apartment prices, particularly in Gangnam District, southern Seoul.

This photo, taken March 18, shows apartment complexes in Seoul. [YONHAP]

The current situation is reminiscent of the early days of the Roh Moo-hyun and Moon Jae-in administrations, when apartment prices — especially those of redevelopment properties in Gangnam — began to surge. Both governments pointed fingers at owners of multiple homes, quickly labeling them speculators. This framing led to aggressive regulatory measures and punitive taxes aimed at owners of multiple homes. The outcome, however, was far from stabilizing. The resulting “balloon effect” inflated prices in not only Gangnam District, but throughout the greater Seoul metropolitan area.

There are growing concerns that the Lee administration could repeat these same policy missteps. But this time, Korea faces even more complex challenges. The country has entered a period of population decline, and a corresponding decline in urban growth is expected to follow. The next phase of housing policy must reflect this demographic reality, while still supporting economic productivity in major metropolitan areas.

Unfortunately, the capital region currently includes inefficiencies that undercut national competitiveness. Seoul and its suburbs are structured in ways that impose high residential costs and long commutes. In many cases, workers spend nearly two hours commuting each day. Years of distorted housing policy have created a spatial structure that drains productivity from the economy.

To reverse this, Korea must promote what urban planners call “jobs-housing proximity,” or policies that help people live closer to where they work. Rather than continuing suburban development, the government should increase residential density in central urban areas and better utilize the spaces between Seoul and Gyeonggi. This requires easing redevelopment regulations and reconsidering how to make better use of nearby greenbelt land.

Old tools like development profit recovery mechanisms and public housing mandates, established during Korea’s high-growth era, may now be reaching their limits. Construction costs have soared, and so have the burdens placed on developers. Tools like the reconstruction levy and obligations to provide public rental units have, in some cases, discouraged supply altogether.

Korea’s housing market is also becoming increasingly polarized. A central cause is the overly strict regulation of owners of multiple homes. These policies fail to recognize the role that stable asset holders can play as providers of rental housing. Instead, they encourage excessive demand for a single high-quality apartment. This “one smart home” phenomenon, especially prevalent in central Seoul, is being fueled by fears of a broader housing collapse akin to Japan’s.

Multifamily buildings and small homes are pictured in a neighborhood in Seoul on Dec. 17, 2024. [YONHAP]

The side effects of such regulation have been substantial. The comprehensive real estate tax has contributed to sharp increases in rent by shifting the burden onto tenants. High capital gains and acquisition taxes have reduced market transactions, limiting housing mobility and discouraging efficient consumption. This has, in turn, dampened employment and income associated with real estate activity. In the low-end housing market, overly rigid rules drove out stable investors, paving the way for widespread rental fraud.

In his inaugural address, President Lee cited the market-oriented housing policy of the Kim Dae-Jung administration. That approach emphasized increasing supply in response to price pressures, and it succeeded in raising Korea’s homeownership rate to record levels. By contrast, the Roh and Moon governments — despite their stated commitment to single-homeownership ideals — presided over falling or stagnant ownership rates.

Given the fragile fundamentals of today’s housing market, Korea cannot afford another failure. If the Lee administration is serious about avoiding the mistakes of the past, it must adopt a different strategy — one grounded in market dynamics, realistic supply goals and a recognition of how housing intersects with national competitiveness and urban productivity.

Translated from the JoongAng Ilbo using generative AI and edited by Korea JoongAng Daily staff.