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As Korea eyes Kospi 5000, housing supply in Seoul remains the missing link

Published: 04 Jul. 2025, 00:03

Kim Won-bae

The author is an editorial writer at the JoongAng Ilbo.

During his presidential campaign, President Lee Jae Myung pledged to usher in a new era for Korea’s stock market, setting a bold goal: the Kospi 5000. The ruling Democratic Party (DP) has even established a special committee dedicated to this vision. The aim is to eliminate the so-called Korea discount on local shares and position equities as a compelling alternative to real estate for investors.

Recent optimism in the stock market suggests that this narrative is gaining traction. But as stock prices climb, home prices in Seoul — especially in the affluent Gangnam area — are beginning to stir again. In response, the government has reinstated lending restrictions, capping home mortgage loans at 600 million won ($441,000) and requiring buyers to occupy the property themselves.

A view of the Jamsil 5 complex in Songpa District, a key redevelopment target in southern Seoul’s Gangnam area. [YONHAP]

In broad terms, the administration’s direction is understandable. It seeks to revive domestic consumption through supplementary budgeting and recovery coupons, while the Bank of Korea leaves the door open for another base rate cut. If corporate restructuring meets ample liquidity, the stock market may see a boom. But that also raises a pressing question: What happens to Gangnam real estate?

When asset values increase, it is natural for people to seek better living spaces. If the Kospi 5000 becomes reality while high-quality housing in central Seoul remains scarce, price spikes are inevitable. Cash-rich investors will drive up prices regardless of loan restrictions. This makes a housing supply strategy essential — not optional.

Reconstruction is a key supply mechanism in Seoul. Yet regulatory hurdles remain severe. During the late Park Won-soon’s tenure as mayor, the city imposed conditions on the redevelopment of the Jamsil 5 complex, including preserving an old building, requiring an international design competition and demanding more public contributions. Framed as enhancing the public good, these policies often amounted to excessive interference in private property rights.

Similar restrictions have been placed on other prime redevelopment zones. Policies like the reconstruction excess profit recovery system and the presale price ceiling system have worked under the same premise: suppressing redevelopment to prevent market overheating.

But reconstruction is inherently driven by profitability. No one will pursue projects that result in financial loss. Paradoxically, when home prices rise enough to justify redevelopment, the government often intensifies regulation. This creates a vicious cycle in which housing supply stagnates. It is worth asking what actual benefit came from freezing redevelopment through regulation over the past years.

The ruling party does acknowledge the importance of supply. On July 2, DP Policy Committee Chair Jin Sung-joon pointed to third-phase new towns and public redevelopment as key policy areas. He also said the government would shorten the approval timeline for private-sector projects while preventing profit monopolization. Likewise, the civic group People’s Solidarity for Participatory Democracy recently proposed stronger public control in redevelopment policy. Yet “public interest” in Korean housing often means more regulation.

A change of course is now needed. Even if some restrictions remain, a minimum level of incentive must be guaranteed to property owners. Policies that destabilize profitability — such as the excess profit recovery system and the price ceiling — must be revisited. Under the current framework, redevelopment charges increase as home prices rise, further blocking projects. Supply is stifled, while old apartments become even more expensive.

Though these policies were designed to prevent windfall profits, the result has been higher overall prices for actual homeowners. A realistic reassessment is in order.

Despite this, calls for a tax-based suppression of real estate speculation continue. Civic groups have criticized President Lee’s stated refusal to use taxation to control housing prices, accusing him of lacking the will to deter speculation. Jin said additional tax policies could be considered if market instability persists. At a press conference on July 3, Lee acknowledged the need for supply-side solutions but added that mortgage regulations were “just a taste” of the broader demand-curbing toolkit. He hinted at even stricter measures.

A bird's-eye view of the Eunma Apartment complex in Daechi-dong, Gangnam District, southern Seoul [YONHAP]

But it is precisely these types of regulations — along with hikes in property and capital gains taxes — that contributed to policy failure under the Moon Jae-in administration. Tax-centric approaches and one-size-fits-all restrictions have distorted the housing market and discouraged supply. The current government, which enjoys a legislative majority, has the political capital to take a more rational, market-aligned approach.

Right now, reconstruction projects face rising labor and materials costs, as well as internal disagreements among residents. Layering calls for public interest on top of these existing challenges only worsens the deadlock. While new town development is a helpful parallel effort, it cannot substitute for central Seoul housing, especially in Gangnam. Ultimately, expanding reconstruction remains the most effective and realistic way to meet housing demand.

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