The real estate market over the first year of the Lee Jae-myung government can be summed up in three words: a "triple rally." Home prices, jeonse (a Korean lease system requiring a large lump-sum deposit instead of monthly rent) prices, and monthly rents all rose. According to the Korea Real Estate Board, Seoul home prices climbed 10.6% over the past year since June last year, while jeonse prices rose 6.8%. Based on KB Real Estate's monthly rent index, the cumulative increase shows that Seoul monthly rents rose about 9% during the first year of the Lee government. Despite a total of five real estate measures, including the June 27 household debt package, home prices and rents alike were bound to rise. There are many factors, but the core is a shortage of housing supply. Much of this stems from declines in housing permits and construction starts under the previous Moon Jae-in and Yoon Suk-yeol governments. With new supply reduced, the government ended its moratorium on heavier capital gains taxes for multi-home owners in an effort to draw existing housing into the market, but the effect was limited.
The problem is that the dominant forecast holds the real estate market will remain unstable in the second half as well. The Construction & Economy Research Institute of Korea projected that home prices and jeonse prices would rise 2.5% and 5.0%, respectively, in the second half. This applies to the Seoul metropolitan area, including Seoul. The regions outside the capital are expected to see only a limited increase of around 0.5%. With massive bonuses being released amid a semiconductor boom and liquidity expanding on the back of a buoyant stock market, there is a large pool of funds that could flow into the real estate market. Rising interest rates and tax reforms such as higher property holding taxes and reduced long-term holding deduction benefits will act as variables, but with supply falling short in sought-after areas where demand is high, instability in the real estate market is likely to continue. The pace of housing supply will need to be raised further in city centers and in the second- and third-phase new towns.
Alongside the government's efforts to curb home prices by tightening lending regulations and raising taxes, an area that demands particular attention is the housing stability of homeless ordinary citizens. As transactions became active centered on homes priced below 1.5 billion won, where lending regulations are relatively lighter, the number of first-time homebuyers grew, but not everyone can own a home. With jeonse shrinking and the shift toward monthly rent accelerating, policies for vulnerable housing groups such as low-income earners and young people must be strengthened. The government has decided to supply 90,000 units of purchased rental housing in the Seoul metropolitan area over the next two years, centered on non-apartment housing such as row houses and multi-family homes that serve as a major supply source for the rental market. Intensive support is needed to ensure that early construction starts and completions can actually be achieved.
The Lee Jae-myung government is not free from criticism that, during its first year in power, it somewhat neglected housing welfare while focusing on curbing home prices. This year, jeonse listings in Seoul fell 14.5% and monthly rent listings dropped 21.2%. Part of this is because rental demand shifted to purchase demand, but it is also evidence of a supply shortage. It is true that gap investment—buying homes with jeonse tenants in place—was one of the factors driving up home prices, and that jeonse prices and home prices interacted to pull and push prices higher. But it is also true that for homeless ordinary citizens, jeonse deposits functioned as forced savings and served as a housing ladder. Now is the time to face reality and put forward measures accordingly. Stability in the rental market is the very foundation of housing stability for ordinary citizens. Expanding purchased rental housing for non-apartments alone is not enough.
To stabilize housing for ordinary citizens, public rental housing must be expanded and its types diversified. Apart from the desire for homeownership, few people would turn down the chance to live for a long time at an affordable price in rental housing built in places with convenient transportation and not far from work. There is a need to provide a variety of rental housing that can be chosen according to household composition—young people, newlyweds, four-person families—and to design it so that people can move depending on their age and income. One approach is to grow the corporate rental housing market so that not only the Korea Land and Housing Corporation (LH) but also private builders and overseas institutional investors can build and supply rental housing. Housing welfare-advanced countries such as Germany and the Netherlands built many rental homes, but with public benefit emphasized, profitability fell and they are said to be struggling with additional supply. If public rental housing is expanded while designing a method that combines public benefit and profitability well, the rental housing market could be revitalized. Now is the time for housing welfare policies befitting a "democratic, progressive government."
