Moon Administration's Real Estate Policy: Similar Yet Different from the Participatory Government's Approach

The Participatory Government Expanded Supply
But the Moon Administration Focused Solely on Market Regulation
Reconstruction Restrictions and Increased Property Taxes
Suppressing Demand Alone Cannot Control Housing Prices

The government announced the "Housing Market Stabilization Plan," which includes strengthening the comprehensive real estate tax on high-priced housing and regulating mortgage loans for apartments priced over 1.5 billion KRW in speculative and overheated speculation areas. On the 17th, a price list was posted at a real estate agency office in Songpa-gu, Seoul. Photo by Kang Jin-hyung aymsdream@

[Asia Economy Reporter Yoo In-ho] The Moon Jae-in administration has revived the "war against real estate speculation" for the first time in 15 years. On the 7th, President Moon declared in his New Year's address that "we will never lose the war against real estate speculation," and the market is already buzzing with anticipation of additional measures from the government. This echoes the words of the late former President Roh Moo-hyun during the 2005 Participatory Government, who said, "We will stabilize the market even if it means waging a war against speculation. Even if the sky splits in two, we will firmly control real estate."

Since its launch in 2017, the Moon Jae-in administration has issued as many as 18 real estate measures. Especially after the December 16, 2020 measures, which included a complete ban on loans for high-priced homes exceeding 1.5 billion KRW, the rise in housing prices in Seoul's Gangnam area has slowed, and the market seems to have entered a correction phase. Nevertheless, President Moon’s use of the term "war" is interpreted as signaling large-scale additional regulations beyond the current measures.

However, experts point out that the government's real estate policy approach is repeating anti-market, regulation-heavy demand suppression measures more than during the Participatory Government. An industry insider criticized, "The current administration introduced reconstruction regulations such as the excess profit recovery system and strengthened safety inspections, which caused supply shortages, and the heavy taxation on multi-homeowners created the trend of owning a 'smart single home'."

In fact, until the mid-Participatory Government, real estate measures focused on demand suppression such as reconstruction regulations, strengthening holding and transaction taxes, reforming subscription systems, and loan regulations. Although the intensity varied, most of the current government's real estate measures have inherited those from that time. However, the Participatory Government shifted from "demand suppression" to "supply expansion" starting in 2006, with the construction of large-scale second-generation new towns like Pangyo and Wirye to absorb demand from the Gangnam area. This was in response to the request of Chu Byung-jik, then Minister of Construction and Transportation (now Ministry of Land, Infrastructure and Transport), a career bureaucrat. A former official said about this policy shift, "There was a consensus within the government and ruling party that without fundamental supply expansion, housing prices could not be stabilized."

On the other hand, the current administration is criticized for still being obsessed with half-measures focused only on demand suppression through regulations. Additional regulatory measures being discussed within the government and political circles include bond bidding systems, housing transaction permits, strengthening resale restrictions, and extending the allowable reconstruction period.

Some argue that the government is engaging in real estate politics by blaming "speculation" for economic policy failures ahead of the general election. The fact that funds have continued to flow into real estate while the stock market has stagnated for years supports this. As of the end of last year, the KOSPI index stood at 2,197, almost unchanged from 1,997 at the end of 2012, indicating almost no increase in capital inflow into the capital market. According to the Korea Real Estate Board, during the same period, apartment price indices in the so-called "Gangnam 4 districts"?Gangnam, Seocho, Songpa, and Gangdong?increased by 37%. The continuous inflow of funds into real estate, reaching speculative levels, is fundamentally a result of capital flight due to uncertain economic prospects.

In particular, the rise in housing prices in the Gangnam area was steeper under the Moon Jae-in administration than during the Participatory Government. According to the Citizens' Coalition for Economic Justice, housing prices in Gangnam rose by 22.57 million KRW per 3.3㎡ during the five years of the Participatory Government, but under the current administration, even though the term has not yet reached its midpoint, prices have surged by 20.34 million KRW per 3.3㎡ in just two years and four months. This contrasts with the Lee Myung-bak administration, which actively expanded supply by lifting greenbelt restrictions and saw housing prices fall by 6.32 million KRW per 3.3㎡. The market generally evaluates that both administrations resulted only in the "paradox of regulation."

Therefore, experts say it remains to be seen whether the market will respond as the government hopes, given the strong learning effect from existing regulations. An industry insider said, "The loan and tax benefits given to rental business operators to curb speculative demand have backfired as a boomerang, causing a boom in gap investments and a disappearance of listings," adding, "The more the government tries to control housing prices, the more the market moves in the opposite direction."

This content was produced with the assistance of AI translation services.