The government is reportedly working on a wide array of measures to stabilize soaring housing prices.
The measures are expected to focus on suppressing demand further as the government has done, such as raising tax on real estate possession and making it more difficult to take out mortgages. This time, eyes are also drawn to how much and where it will increase supply.
Supply expansion is a move in the right direction. The administration under President Moon Jae-in has effectively treated the owners of homes in preferred southern districts of the capital city as speculators and tried to suppress demand for the property there. However, contrary to what the government expected, such policy backfired, fanning housing prices instead.
According to Korea Appraisal Board, Seoul apartment price for the first week of September rose 0.47 percent. It was the sharpest rise since the related statistic was first gathered in 2012. This is a humiliating blow to the authorities, which designated most districts of Seoul as speculation zones subject to tighter mortgage eligibility and less tax exemptions on Aug. 2 and added a few districts to the list of such zones on Aug. 27 after housing prices kept rising.
The surge in housing prices has spread rapidly from Seoul to several adjacent cities. Resentment runs high among those who have not purchased apartments to wait for government measures to lower housing prices.
Considering the undeterred ascent of housing prices in Seoul, it is understandable for the government to prepare additional sweeping measures even a few weeks after taking strong ones. However, it is disappointing that the government, the ruling party and Cheong Wa Dae are all over the map, sending confusing signals to the market before unveiling them.
Deputy Prime Minister Kim Dong-yeon talked about the necessity of “mending real estate holding tax,” while Lee Hae-chan, leader of the ruling Democratic Party of Korea, stressed the need to raise real estate holding tax on owners of three or more homes. Jang Ha-sung, Cheong Wa Dae’s chief policy maker, said, “It is not a cure-all to raise the tax sharply.”
Minister of Land, Infrastructure and Transport Kim Hyun-mee hinted at reducing tax benefits to landlords who lease homes, flipping an existing policy which has encouraged home leases.
The ministry said it was considering lifting greenbelt restrictions in and around Seoul to increase supply, but the Seoul mayor opposes the idea.
Policy zigzags will foster distrust, and only ensure that whatever policies are tried will misfire.
After the government vowed to take additional measures to regulate the market, members of the public began to voice complaints. They wrote posts on the Cheong Wa Dae website, petitioning the government to stop regulating the market and leave the market alone.
The Moon administration has tried to tighten its control over the market. But it should note that it has hardly achieved the desired results by suppressing demand.
The government must abandon its view of the market, particularly plush districts or affluent residents, as a target to be defeated. The issue of housing prices can best be solved in a market-friendly way. The government will have to clear greenbelt inevitably in the outskirts of Seoul to secure space to expand supply. However, even if new homes are built in the cleared greenbelt outside of Seoul, their effect in bringing down housing prices in the capital might not be so great. The thing is to satisfy demand for homes in Seoul as much as possible.
If it is difficult to secure land for new housing in Seoul, the second best plan is to redevelop decrepit areas and reconstruct old apartments in preferred locations. The prices of redeveloped or reconstructed housing may rise further, but they will not last long. They will eventually ease over time.
If additional measures on the drawing board will go against the market, it may become impossible to curb Seoul housing prices.
Increasing supply in areas where people want to live is the only way out of the housing policy stalemate.