[How Is Your Dream] Government Fails to Stabilize Housing Prices... Yet No Policy Changes

Starting with Confidence but Ending in Failure
Early-Year Mention of Housing Price Recovery
Could Not Prevent Surge in Sale and Jeonse Prices
Maintaining Stance Despite Repeated Policy Failures
Uncertain Outlook for 2021 Real Estate Market

[Asia Economy Reporter Moon Jiwon] Last year's government real estate measures started with 'confidence' and ended in 'failure.' Until early last year, the government was so confident that it even mentioned 'restoring housing prices to their original state,' but due to continuous failures and worsening public opinion, the heads of related ministries were busy bowing their heads repeatedly. The six rounds of measures failed to beat the market, and Kim Hyunmi, the first Minister of Land, Infrastructure and Transport under the current administration, resigned in disgrace. The 2020 real estate policy was, for the government, nothing short of 'gloomy.'

The government's confidence in winning the 'war against housing prices' was clearly shown at President Moon Jae-in's New Year's press conference early last year. President Moon said at the time, "We clearly reaffirm our determination to firmly control real estate during our administration," and "We will continuously introduce strong measures." In particular, regarding some areas where housing prices had risen sharply, he said, "Price increases must be restored to their original state," which put the market on edge.

As President Moon confidently declared, the government released several strong real estate measures. It began with the 2.20 measures designating Yeongtong, Gwonsun, and Jangan districts in Suwon City, Gyeonggi Province, and Manan district in Anyang City, and Uiwang City as regulated areas. These areas had seen significant price increases due to the 'balloon effect' following the 12.16 measures in 2019. However, the 'pinpoint regulation' that did not consider the abundant liquidity in the market caused another balloon effect, continuously driving up housing prices in the metropolitan area.

Eventually, the government announced the 6.17 measures, designating the entire metropolitan area as regulated zones and preparing countermeasures against 'gap investment (buying with jeonse deposits).' Afterward, while buying demand in the Gangnam area slowed, the overall real estate market situation worsened. Due to the excessive and complicated regulations, confusion and dissatisfaction erupted over subscription loan limits and other issues in places suddenly designated as regulated areas, such as Seo-gu in Incheon. The Ministry of Land, Infrastructure and Transport and the Financial Services Commission, which issued measures without thorough preparation, could not handle the flood of complaints, causing confusion not only among demanders but also at frontline banks and sales sites.

Although the government's measures caused various side effects, they failed to control housing prices. Eventually, President Moon summoned Minister Kim Hyunmi for an emergency report and ordered even stronger measures. As public anger over soaring housing prices grew, the Ministry of Land, Infrastructure and Transport and the Ministry of Economy and Finance introduced the ultra-strong 7.10 measures, which included reforms to the subscription system, increased tax burdens on multiple homeowners, and the abolition of registered rental housing. At the end of July, the new lease law, including the rent ceiling system and the right to request contract renewal, was also fully implemented.

With the government abolishing private registered rental housing and implementing the lease law, already unstable jeonse prices began to skyrocket. Since the lease law focused on strengthening tenants' rights, a decrease in jeonse listings was somewhat expected, but the extent exceeded the government's expectations. Even those waiting for the 3rd new town pre-subscription through the 5.6 measures stayed in the jeonse market, causing an unusual phenomenon where jeonse prices in the metropolitan area rose by hundreds of millions of won within a month or two.

In particular, as jeonse prices surged, some tenant demand shifted to home purchases, causing housing prices to rebound. Mainly young people in their 30s engaged in 'panic buying' by purchasing many relatively affordable apartments in the outskirts of Seoul and the metropolitan area, which significantly raised mid-to-low priced apartment prices, perpetuating a vicious cycle of worsening housing instability for ordinary citizens. To curb this anxiety, the government gathered housing supply sites in Seoul and other metropolitan downtown areas and announced the 8.4 supply measures, but it failed to calm the market.

Meanwhile, conflicts in the real estate market intensified. When the government increased special supply quotas and relaxed income criteria for youth and newlyweds, who were marginalized in the subscription market due to low scores, dissatisfaction among middle-aged and older people who had waited a long time for sales peaked. After the lease law's implementation, disputes between tenants and landlords increased, and landlords who could not realize expected profits due to the abolition of registered rental housing strongly opposed by filing constitutional complaints.

As a desperate measure, the government announced the 11.19 jeonse measures at the end of last year and designated 37 areas, including Paju in Gyeonggi Province and Busan, as regulated zones at once, intensifying regulations. However, this too has yet to achieve significant effects. The jeonse measures aim to supply 114,000 jeonse units by next year, but most are limited to villa-type public rental housing, leading to analyses that the effect on stabilizing housing prices will be minimal. The expansion of regulated areas also causes side effects by ultimately concentrating abundant market liquidity in Seoul.

Former Minister Kim Hyunmi and Deputy Prime Minister and Minister of Economy and Finance Hong Nam-ki apologized several times last year, saying "We are sorry" for these continuous failures. However, the policy direction focused solely on regulation is still maintained. Minister Byun Chang-heum, who succeeded Kim, has also declared that he will maintain the existing policy framework of strengthening regulations and public-led supply. Experts and industry insiders express concerns that if the government continues with a regulation-only approach without communicating with the market this year, housing instability like that in 2020 will persist.

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