Proven 'Supply Effect' by Successive Governments

[Asia Economy Reporters Minyoung Kim and Seoyul Hwang] South Korea's housing market has experienced four periods of price increases since 1986, during which the government alternated between large-scale supply expansions and strong regulatory policies to stabilize the market. In the early years of administration, when presidential powers were strong, large-scale supply policies were mainly announced, achieving price stabilization. However, in the later years of administration, policies focusing on deregulation pushed stabilized housing prices upward again. This is why it is believed that the new government's supply measures need to be accompanied by careful control of the level and pace of deregulation to stabilize the real estate market.

The period known as the "supply bomb" in past governments was during the Roh Tae-woo administration, which took office in 1989. In response to the rapid rise in housing prices in the late 1980s, the Roh Tae-woo government promoted large-scale supply through the construction of first-phase new towns. As a result, the soaring apartment price growth rate in Seoul dropped to -2.76% in 1993, a representative case of the government’s will to control Seoul apartment prices. Although the overall price increase during the administration was high due to the large initial surge, the Ministry of Construction and Transportation at the time explained that "housing prices began to decline starting in 1991, when housing supply began."

The Kim Young-sam administration did not pursue large-scale supply policies but implemented real-name financial and real estate systems to preemptively regulate speculative transactions. It also focused on market stabilization through measures such as deregulating prices in the metropolitan area and reducing capital gains tax rates. Separately, the International Monetary Fund (IMF) financial crisis struck at the end of that year, causing Seoul apartment prices to plummet. During this period, nationwide apartment prices fell by -2.03%, and Seoul saw a decline of -2.88%.

President Kim Dae-jung, who took office in 1998, announced measures to revitalize the housing market and temporarily allowed the resale of pre-sale rights, pushing for large-scale deregulation to stimulate the economy. However, this immediately led to a surge in housing prices, with Seoul apartment prices jumping by 59.8%. This was also the reason President Roh Moo-hyun declared a war on speculation. Nevertheless, prices continued to soar, with Seoul apartment prices rising by a staggering 56.0% from March 2003 to February 2008.

The Lee Myung-bak administration’s real estate policy can be summarized as "pinpoint supply." In September 2009, during the first year of his term, the Lee administration announced a supply plan for the metropolitan area, lifting greenbelt restrictions in areas such as Naegok and Segok in Seoul to supply 17,199 apartments. It also announced a plan to build 3 million homes in the metropolitan area and 2 million homes in provincial areas by 2018 under the "Bo Geum Ja Ri" housing project. During his term, the apartment sales price change rate was an average nationwide decrease of 2.02%, and a 3% drop in Seoul.

The Park Geun-hye administration pursued various deregulation policies related to real estate, but as deregulation policies combined with ultra-low interest rates caused apartment prices to rise and household debt to surge, the policy direction shifted back to regulation. By the end of her term, nationwide apartment sales prices had risen by 10%. The Moon Jae-in administration’s policies to suppress speculative demand backfired, causing housing prices to skyrocket. Although supply measures such as the 2·4 Plan were belatedly introduced, the only result was a record-breaking 61.85% increase in Seoul apartment prices over five years.

Professor Baek Seong-jun of Hansung University’s Department of Real Estate said, "The Moon Jae-in administration focused on urban regeneration, reducing supply within city centers, especially in Seoul where the 35-floor rule was introduced and the New Town policy stopped, causing supply to lag behind demand. The supply policy of President-elect Yoon Seok-youl can be seen as a normalization policy that follows market principles."

President-elect Yoon Seok-youl’s supply policy also includes attempts such as "youth cost-price housing supply" and "first homes near transit stations" to provide homeownership opportunities for young people. These differ from Happy Housing and Bo Geum Ja Ri housing in that location was prioritized above all else. Professor Cho Joo-hyun, emeritus professor of real estate at Konkuk University, analyzed, "The new government is differentiated by increasing floor area ratios mainly around transit stations to supply many youth housing units."

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