(An aerial view of an apartment cluster in Songpa District, Seoul, taken by Yonhap News)
Written by Austin Moon
Many Koreans remember a time when they would laugh at comedians joking about soul-crushing housing prices, poking fun at the South Korean government’s inability to deter its seemingly unstoppable upward trend. After five years, more than 20 desperate real estate policy changes, and unexpected turbulence in the economy, the housing market has become all but a laughing matter.
High housing prices have historically been a cause of concern in Korea. Though there is some dissent, most Korean experts have generally agreed on a number of problems responsible for this long-standing phenomenon. Put simply, the demand for desirable housing systematically outstrips supply. Data shows that there’s more to the problem: in 2018, the percentage of available housing compared to households was 104.2% (Ministry of Land, Infrastructure, and Transport, 2021). On the surface, there seems to be a surplus of housing, rather than a shortage.
However, there are several underlying factors that contribute to and contradict this superficial observation. In the same year, 6% of homes in the nation failed to meet minimum housing standards. 18% of housing units had been built at least 30 years ago, indicating possible signs of structural instability and generally undesirable conditions (KDI, 2019). Furthermore, desirable housing is concentrated in Seoul, the capital of South Korea, as the city houses over 50% of all households due to its disproportionately well developed infrastructure and economic opportunities (Koo, 2021).
In previous years, the government had encouraged prospective homeowners to borrow from banks in order to purchase real estate, lubricating the housing market. Though the cost of housing was higher than desirable, the growth rate of housing costs had remained largely consistent. Like his predecessors, President Moon Jae-In boldly declared that real estate policy was at the forefront of his administration’s interest. In his address to the 21st Session of the Korean Parliament, he largely grouped the focuses of his administration’s policies as restricting real estate speculation, discouraging current property owners from purchasing more real estate or gaining disproportionate amounts of passive income, and providing housing subsidies for the lowest income bracket (Korea Government Archives, 2021).
The Moon administration first identified real estate speculation as the evil lurking behind the high housing costs. Immediately following President Moon’s election, they identified “speculation regulation zones” which included the entirety of Seoul and Incheon (both with prolific industrial zones) as well as Gyeonggi, a province in close proximity to the capital. These regions held significance: as competition for housing had been consistently high, driving prices up. This laid the foundation for them to introduce policies that increased the minimum loan-to-value ratio (LTV), which represents the total value of a loan to the total value of the property mortgage. In essence, it acts as an indicator of the value of housing assets in case the loaner defaults. At the same time, the government increased the debt-to-income ratio (DTI), the ratio of loanable funds to the lender’s annual income. The DTI essentially dictates how much an individual can borrow through assessing their credit, cash flow, and thus general loan repayment capability. Finally, the government raised property taxes in increments on multiple property owners (Korea Policy Briefing, 2019).
The goal of strengthening the LTV and DTI requirements in conjunction with increasing property taxes is simple. In doing so, the government intended to restrict people from purchasing more property through loans. The combination of those policies had disastrous effects. The strengthening of the LTV and DTI qualifications meant that only those with high-valued property, a good credit history, low outstanding loans, and a healthy cash flow would be allowed to borrow money, all while paying increased property taxes. Meanwhile, the middle class found themselves incapable of taking out loans to purchase properties, as their qualifications paled in comparison to the wealthier class. Simultaneously, they were considered as ineligible for government subsidies as they were not part of the lowest income bracket.
This takes us back to the aforementioned shortage of prime housing locations, which happens to include almost the entirety of Seoul. Since real estate is known to appreciate over time, the cash-rich, who did not rely on loans, continued to invest due to the minuscule influence that the DTI and LTV restrictions had on their activities. Ironically, the removal of the middle class from the housing market competition had achieved nothing. Rather, housing prices began to skyrocket as competition mainly occurred between the cash-rich, especially in the highly desirable areas the government had designated as regulation zones. For instance, data from a housing price information aggregate shows that the prices for a property near a booming transportation hub downtown have increased by more than twofold from approximately 1 million USD to 2.5 million US in just 4 years (“HGNN Korean Housing Price Aggregate”, 2021).
This, however, was not a trend limited to high-interest property in Seoul. In 2021, according to the KB bank information aggregate, the average price of housing across all of Seoul surpassed approximately 1.02 million USD, almost exactly twice the average housing prices in 2018 (Lee, 2021). Meanwhile, a survey conducted on members of the Korean Economic Association showed that 76% of members believed, to varying degrees, that these government policies played a significant role in exacerbating the housing prices (Korean Economic Association, 2020). These figures attest to the failure of the Moon administration’s attempts at regulating the housing market: not only were they unable to drive down housing prices as they had promised, the lackluster restrictions on real estate purchasing in fact encouraged speculative behavior from those who could afford it.
Recently, the Moon administration finally broke their silence on the matter, which had previously been interrupted only by new yet equally ineffective policy changes. In September 2021, the administration announced to the public that “they formally apologize and are at a loss of words”, ultimately acknowledging their failure (Lee, 2021). Following their apology, they implored whoever the next administration may be to not repeat their mistakes. However, it is highly questionable whether this late apology has any meaningful and constructive implications for Korean society.
Today, the general populace still reel from the aftermath of the housing policies. Some believe that South Korea has become a nation of homeowners and non-home-owners, and the gap between the rich and the middle class seem to be ever-growing. The difficulty to obtain secure housing has subsequently had disastrous effects on birthrates. In fact, for the first time in modern Korean history, the population decreased by 20,000 people, indicating that the number of the deceased outstripped the number of newborn children (Chung, 2021). Such phenomena project a grim future on the national pension plan which is modeled around constant population growth.
Many Koreans are watching the presidential campaigns with bated breath as the Moon administration, one that widened pre-existing cracks in Korean society, reaches the end of their term. One thing seems clear: the victor, regardless of party lines, will have to bear incredibly heavy burdens.
Chung, Hankook. “대한민국 인구가 줄었다.” Chosun.com, Chosun Ilbo, 4 Jan. 2021, https://www.chosun.com/national/2021/01/04/SQAB3WDGVREEXFWEFQ5BUM4XAE/
“HGNN (Korean Housing Price Aggregate).” Seoul, South Korea, 10 Dec. 2021. https://hogangnono.com/apt/1GD6e
Ministry of Land, Infrastructure, and Transport, “Housing Supply Rates.” 국가지표체계, Statistics Korea, 21 Jan. 2021, https://www.index.go.kr/potal/main/EachDtlPageDetail.do?idx_cd=1227
KDI, “「2018년도 주거실태조사 결과」 발표: 경제정책자료: KDI 경제정보센터.” 「2018년도 주거실태조사 결과」 발표 | 경제정책자료, Korea Development Institute, 16 May 2019, https://eiec.kdi.re.kr/policy/materialView.do?num=188554
Koo, Jeong Tae. “성인남녀 절반 ‘인프라 풍부한 수도권으로 이사 원해.’” Hankook Ilbo, 17 June 2021, https://www.hankookilbo.com/News/Read/A2021061414260002046
Korea Policy Briefing. “[정책위키] 한눈에 보는 정책 – 부동산 정책.” 부동산 정책 | 정책위키-한눈에 보는 정책 | 기획&특집 | 대한민국 정책브리핑, Korea Policy Briefing, 11 Oct. 2019, https://www.korea.kr/special/policyCurationView.do?newsId=148865571