Korea’s housing policy must take a two-track approach for Seoul and the provinces

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Korea’s housing policy must take a two-track approach for Seoul and the provinces

Published: 20 Jun. 2025, 00:03

Audio report: written by reporters, read by AI

Joo Jung-wan

The author is an editorial writer at the JoongAng Ilbo.

Twenty-two years ago, President-elect Roh Moo-hyun asked a pointed question after receiving a real estate policy briefing: “Have we really deregulated this much?” The meeting took place during the transition from the Kim Dae-jung administration, which had significantly eased housing regulations in its effort to revive the economy after the 1997 financial crisis.

Roh’s administration soon declared what it called a “war on housing prices,” relying heavily on a wide array of regulatory tools. Property taxes, including a comprehensive real estate tax, were introduced to target high-end homeowners. Price caps were imposed on new apartment sales to curb market speculation. And the government introduced a redevelopment gains tax to claw back profits made by union members involved in reconstruction projects.

Apartments across Seoul are shown on June 19. [YONHAP]

The outcome is well known. The Roh administration failed to control housing prices. Government interventions that ignored market dynamics resulted in widespread side effects. Public trust eroded, and the housing market remained overheated. In the end, the conservative Grand National Party (GNP) reclaimed the presidency in the 2007 election.

A similar pattern emerged during the Moon Jae-in administration, which began in 2017. Key policymakers appeared to learn little from past mistakes. Emboldened by a belief that tougher regulations would succeed where past ones failed, they rolled out stronger housing restrictions. Meanwhile, massive liquidity flooded the market due to record-low interest rates and expansionary fiscal spending.

The results were disastrous. Housing prices soared, and poorly designed rental regulations — such as the so-called “two lease laws” — further distorted the market. The housing crisis deepened, especially in Seoul.

Now, the Lee Jae Myung administration faces its own real estate test just weeks into office. According to the Korea Real Estate Board, apartment prices in Seoul have risen for 20 consecutive weeks as of the third week of June. The surge, initially concentrated in Gangnam, Seocho, Songpa and Yongsan districts, is now spreading to other areas, including Mapo, Seongdong, Gangdong and Dongjak.

In contrast, apartment prices in most regional cities — including Busan, Daegu, Gwangju and Daejeon — continue to fall, with Ulsan the sole exception. The stark divergence highlights growing regional polarization: red-hot demand in central Seoul and a cooling market elsewhere.

Given these conditions, it’s not surprising that the government is once again contemplating regulation. But the lack of a clear policy direction has triggered market confusion and speculation. While Lee’s presidential campaign emphasized that housing prices cannot be controlled through taxation alone, it would be unwise to interpret this as a promise to avoid tax increases altogether. As a candidate, Lee remarked that multiple-home ownership could not be banned, but owners should pay their fair share in taxes — a statement that leaves the door open for moderate tax hikes.

The absence of confirmed nominations for key positions, including deputy prime minister for economic affairs and minister of land and transport, has further fueled uncertainty. At a housing task force meeting on June 12, First Vice Minister of Economy and Finance Lee Hyung-il stated that the government would consider “all available policy options.” But this broad and noncommittal language provides little insight into the timing or content of the administration’s first housing policy initiative.

The government clearly faces pressure to act. Still, it must avoid sweeping and indiscriminate regulation. Policies that disregard market fundamentals are destined to fail. Singling out multiple homeowners as scapegoats, as the Moon administration did, may end up fueling demand for so-called “one smart home” properties in desirable areas, exacerbating inequality rather than solving it.

If regulation is deemed necessary, the government must adopt a differentiated strategy for Seoul and the rest of the country. A recent report from the Bank of Korea supports this view. It notes that while demand remains high in the capital region, the provinces suffer from oversupply and a growing stock of unsold housing.

The photo shows a model apartment in Pyeongtaek, Gyeonggi. [YONHAP]

As of April, unsold units that had already been completed — referred to as “problematic unsold inventory” — reached their highest level in 12 years, with 83 percent located in non-capital regions. The central bank urged the government to reinvigorate regional economies to mitigate the imbalance between the capital and the provinces and to ease the demographic concentration in the greater Seoul area.

How the Lee administration handles its first major real estate initiative will set the tone for its broader policy approach. Early credibility is critical — if the administration fails to gain the market’s trust now, future efforts will be even more difficult.

Rather than defaulting to regulation, the administration must prioritize balanced measures. It should unveil supply-side solutions for the capital region while introducing policies that can reduce regional disparities. The new government must send a clear message that it has learned from the past and will not repeat the missteps of its predecessor.

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