New administration must show clear will to stabilize housing market

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New administration must show clear will to stabilize housing market

Published: 16 Jun. 2025, 00:00

Audio report: written by reporters, read by AI

A view of high-rise apartment buildings in Sejong City on April 25 [YONHAP]

Housing prices are once again rising sharply, prompting renewed concerns about affordability and financial stability. Household debt, driven by aggressive real estate investments, has surged to alarming levels. In response, financial regulators have called in deputy heads of major banks for a closed-door meeting to discuss the trend.

Since President Lee Jae-myung took office, the housing market in Seoul has shown signs of overheating. Home prices in the capital’s Gangnam, Seocho, and Songpa districts as well as Seongdong District have exceeded their previous peaks. In Gwachon, Gyeonggi, prices have also surpassed previous records. Neighborhoods along the Han River, including Gwangjin, Gangdong, Yeongdeungpo, and Dongjak, are approaching similar levels.

The recent price surge has coincided with a sharp rise in household debt. As of June 12, outstanding household loans at Korea’s five major banks reached 750.1 trillion won ($548.4 billion), an increase of nearly 2 trillion won from the end of the previous month. According to data from the Organisation for Economic Cooperation and Development, Korea’s household debt-to-income ratio stood at 186.5 percent in 2023 — far exceeding the United States at 103.4 percent and Japan at 124.7 percent. As more income goes toward repaying loans, domestic consumption weakens, adding to the country’s economic slowdown.

While low interest rates have fueled demand, a structural factor is the sluggish pace of new housing supply. Although the Yoon Suk Yeol administration promoted housing construction, a time lag means new housing stock in the Seoul metropolitan area will remain limited this year and next.

Market sentiment has also been shaped by the perception that the government lacks the will to rein in prices. During the presidential campaign, Lee said there was no need to suppress prices if they rise, and that using taxes to curb property speculation would lack legitimacy. While consistent with market principles, the comment drew criticism. Seoul National University emeritus professor Lee Joon-gu argued that the statement signaled a willingness to tolerate speculation and sent the wrong message.

The government must respect market dynamics while also demonstrating a firm commitment to controlling housing instability. Speculation that progressive governments tend to tolerate rising home prices must be dispelled. As the Bank of Korea noted in a policy report released Wednesday, once price expectations are set, they are difficult to reverse. It is therefore essential to prevent such expectations from forming in the first place.

Apartment buildings in Apgujeong, Gangnam District, southern Seoul, are pictured in this photo taken May 7. [YONHAP]

As interest rates near a turning point, macroprudential tools such as loan-to-value and debt service ratio caps should be used to temper sentiment. The Lee administration, which refrained from presenting a clear housing policy during the election to avoid alienating middle-class voters, must now offer a credible plan for price stabilization.

If needed, it should reconsider excessive property tax cuts. Redirecting capital from real estate to promising venture businesses or high-performing stocks is also crucial. No government, and no president, can claim success if it fails to contain runaway housing prices.

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