Regulatory policy

[Election 2022] How Moon’s failed housing policy impacted the election

SEJONG — A series of failed policies by the Moon Jae-in administration aimed at taming South Korea’s housing market have been at the center of this year’s presidential election, with candidates putting housing-related programs front and center of their campaigns.

Obviously, housing policy will be included in the first batch of President-elect Yoon Suk-yeol’s to-do list as soon as he forms a transition committee.

If politics were to be prioritized, the lesson learned from incumbent President Moon’s failure and the repercussions it sent across the market should make the new leader think carefully about his options, experts say.

It will also take some time to see real change in the market, as most campaign promises – such as lowering tax burdens or lifting regulatory measures on apartment reconstruction – will force the new administration to demand revisions to the law. . The process itself is long, but it is further complicated by the upcoming local elections in June, where the new heads of municipalities who are the main decision-makers for regional redevelopment plans will be chosen.

“Debates about expanding housing supply and deregulation measures will resurface before and after local elections on June 1. It remains to be seen whether the new president’s (Yoon) push for deregulation will match the city’s new governors and mayors,” a real estate agent told Sejong.

“The possibility exists that the new central government will come into conflict with municipalities over new housing measures, which could plunge the market into another state of chaos.”

Some real estate agents and observers have also raised the possibility that deregulations involving mortgage terms at the start of the next government could once again invite speculative investment, which would boost the market despite the supply schemes.

Doo Sung-kyu, a former researcher at the Korea Construction and Economics Research Institute, was quoted by a news outlet as saying he expects prices to rise in the near term. “House prices will climb in the second half of this year as demand still outstrips supply,” he said.

In a research report, Real Estate 114 also said that “expectations for reconstruction and redevelopment are growing thanks to election promises and Seoul’s commitment to active housing supply.”

The hot potato

Real estate has been one of the top sensitive issues for South Korean voters in major elections over the past few decades. It’s a question that might even determine the winner.

Voters did not hesitate to vote for political parties or candidates who had committed themselves to a sufficient supply and stabilized prices for housing. Most Korean households want to buy an apartment at reasonable prices. According to data from Statistics Korea, some 42% of Koreans do not own their homes.

The Moon government argued that homeowners could suffer losses as its policy would eventually drive down property prices.

Their confidence in the stabilization had enabled many households to sell their homes or delay their purchase. Many became tenants of landlords in the second half of 2017 and 2018.

The administration, led by the Lands Department and the Finance Department, had unveiled a series of “anti-speculation measures” nominally between 2017 and 2019.

The measures were aimed at issuing various regulations to the market. For the supply segment, policies have mainly focused on building long-term rental apartments, instead of providing new apartments via reconstruction and redevelopment in Seoul and major cities in Gyeonggi Province. .

Policymakers have tightened mortgage lending in terms of caps and lending requirements, continually criticizing the Park Geun-hye administration’s 2013-2017 policy to stimulate the economy by revitalizing the real estate sector. The cap, or loan-to-value ratio, was zero in some expensive areas of Seoul, which meant locking in buying a home through mortgages.

The government also simultaneously increased capital gains tax for home sellers. This resulted in a situation where the demand for homes from potential buyers far exceeded the supply from potential sellers as more and more homeowners gave up on selling their properties.

The supply shortage led to a spike in apartment prices in the Seoul metropolitan area, including Gyeonggi Province and Incheon, from 2019. Nevertheless, President Moon said the administration still has confidence in the reduction in housing prices.

Repeated failures

Although the liberal-leaning government, led by market reformers, unveiled other housing policies, including building apartments by designating “new towns” in parts of Gyeonggi Province, it adopted a lukewarm stance toward increasing supply in Seoul via reconstruction or redevelopment.

This triggered the widening of the price gap between Seoul and outside Seoul, and between the expensive Gangnam area and the non-Gangnam area in Seoul.

Regardless of the discrepancy by region, Korea has seen a spike in home prices nationwide. This was led by a greater propensity to take risks among young people in their 20s and early 30s who felt a sense of urgency that house prices could continue to rise faster than their income growth.

Despite the pandemic, which began in early 2020, the average home sale price in Seoul and some major cities jumped 100-150% between 2017 and 2021. A growing number of people viewed real estate policy as a administration in place as a “failure”. .”

Asking prices at an apartment complex in Seoul’s Banpo-dong hovered between 3.5 billion and 4 billion won ($2.8 million to $3.2 million) for an 84-square-meter unit this year. These prices were around 1.6 billion won in 2017 and 700 million won in 2014.

If a household is looking to buy a similar-sized apartment with 700 million won this year, they will need to consult real estate agencies in satellite cities or provincial towns, not Seoul. There are few apartments at such prices in the 25 districts of the capital, which even frustrated a certain part of the former Moon supporters.

While the price spike may be welcomed by some landlords, the simultaneous nationwide rise has made it difficult for them to move to other complexes in the same residential areas after selling old apartments “due to heavy capital gains tax”.

During the latter part of his term, a sharp rise in the overall property tax stoked the fury of homeowners. They have been saddled with a double tax burden in addition to the property tax increase.

In 2020, Korea ranked No. 2 among the 38 members of the Organization for Economic Co-operation and Development for the ratio of property tax to gross domestic product. This figure reached 3.97%, while the country’s ranking was 6th in 2019.

Building hopes

As the market grapples with a shortage of supply, heavy taxes and rising interest rates, Koreans are pinning their hopes on President-elect Yoon, who is expected to take office on May 10 to bring about meaningful change. .

In particular, attention is focused on mortgage rules and whether the new administration will loosen the cap in the coming months for active trading of homes on the market.

Some critics advise Yoon’s presidential transition team not to rule out unveiling a risk management plan in its policy guidelines. A Seoul-based analyst said: “As interest rates rise internally, reckless deregulation could be poison for the household sector and the broader economy.”

By Kim Yon-se ([email protected])