When home prices rise, it's golden time to create supply

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When home prices rise, it's golden time to create supply

Published: 07 Nov. 2025, 00:03

Audio report: written by reporters, read by AI

Kim Won-bae

The author is an editorial writer at the JoongAng Ilbo.

Rising home prices in Seoul’s Gangnam District are back in focus. The question is whether this can be solved. There is no quick or simple fix. When such questions arise, it is worth returning to fundamentals. In economics, when demand increases and prices rise, producers ramp up supply, which stabilizes prices again.

Housing prices in Seoul recorded their highest monthly increase this year since the government’s Oct. 15 real estate measures, as apartment complexes are seen from Namsan in Seoul on Oct. 27. [YONHAP]

The same principle applies to real estate. From a pragmatic view, a rising market is the best moment to increase housing supply. Higher presale prices make development more financially viable and speed up decision-making. While speculative demand must be contained through regulation during overheated markets, price stabilization is impossible without sufficient supply. President Lee Jae Myung’s administration outlined plans to expand housing in its Sept. 7 measures, yet the release of another plan on Oct. 15 suggests that the market remains doubtful of the government’s resolve.

In central Seoul, the only realistic way to add housing is through redevelopment and reconstruction. Some lawmakers from the ruling Democratic Party recently called for abolishing the reconstruction windfall tax. Their assessment of the situation is accurate, but implementation remains the challenge. Everyone knows more homes must be supplied through these projects, but fears persist that easing regulations will push home prices even higher. It is time for a reversal in thinking — to acknowledge reality and commit to long-term supply measures.

During the previous Moon Jae-in administration, then-Land Minister Kim Hyun-mee famously said, “You cannot supply apartments like baking bread.” She was right. That is why the government should have ensured that the “bread factories” kept running. Instead, many projects were stalled altogether. That mistake should not be repeated.

When home prices start to fall, reconstruction projects lose profitability and stall. The current sharp rise in prices is not desirable, but if redevelopment does not proceed now, the supply shortage will continue. This is a golden time. If regulations continue to stop reconstruction and the market rises again, only old apartments with reconstruction potential will surge in value. This cycle cannot continue indefinitely. Some regulations may still be necessary, but they must not contradict basic market principles. Caps on presale prices and restrictions on relocation loans should be eased to allow projects to move forward.

Other tools should be used alongside redevelopment. Demand for apartments is excessively concentrated, and alternatives like officetels and small multifamily homes must be supplied in greater numbers. Government data from the Sept. 7 measures show that construction starts for non-apartment homes in the greater Seoul area, including officetels and villas, fell to 14,000 units last year — far below the 10-year average of 69,000. Regulations for officetels, such as building spacing and common facilities, are less strict than those for apartments. Floor heating rules have been eased, and construction times are shorter. When buying an apartment in a preferred location is not possible, nearby officetels should serve as realistic alternatives. The housing ladder should offer choices, allowing people to gradually improve their living conditions.

Such policies come with political risks for the government and the ruling party. Suppressed demand could resurface, and critics may accuse the administration of favoring apartment owners or reconstruction associations. But these issues should be viewed within the broader framework of tax fairness. Tax systems should not be revised each time housing prices rise. If taxes are raised when prices climb, it becomes difficult to justify lowering them when prices stabilize or fall.

This is especially important for housing-related taxes such as acquisition tax, property tax, comprehensive real estate tax and capital gains tax. These need deeper discussion. They are also tied to the issue of people owning a “single valuable home.” The current structure offers generous tax benefits to single-home owners while penalizing owners of several lower-priced properties. That imbalance should be corrected over the long term. Tax benefits for single-home ownership could be reduced. Under current rules, up to 80 percent of capital gains tax can be deducted for long-term possession, split evenly between ownership period and residency period. There is little justification for offering such large benefits for homes simply held without residence.

A television at a real estate agency in Seoul airs a government announcement on measures to stabilize the housing market on Oct. 15. All 25 districts in Seoul and 12 areas in Gyeonggi Province were designated as regulated zones, including speculative and overheated speculation areas. [YONHAP]

The housing subscription system also needs reform. The current point-based system encourages middle-class families — who can afford homes — to delay purchases, waiting for better odds. Price caps on new apartments have even created “lottery apartments” in areas like Gangnam, where tens of billions of won in gains are possible. The government’s role is to ensure stable housing supply, not to run a lottery business. Bringing back the previous bond subscription system could be more equitable, allowing public funds recovered through bond premiums to be used for rental housing.

Ultimately, housing supply must be approached with patience, consistency and a firm understanding of market dynamics. Home prices rising is not only a crisis but also a signal — and an opportunity — to prepare supply before the next shortage arrives.

This article was originally written in Korean and translated by a bilingual reporter with the help of generative AI tools. It was then edited by a native English-speaking editor. All AI-assisted translations are reviewed and refined by our newsroom.