[Insight & Opinion] Yoon Administration Pursues Short-Term Decline in Housing Prices

In early July, Seoul Mayor Oh Se-hoon's remark that "a crash should not happen, but housing prices need to decline further" was discussed in real estate communities. Reactions varied. Among them was a response stating that a price decline was something the Yoon Suk-yeol administration had never even considered. Earlier, in May, Minister of Land, Infrastructure and Transport Won Hee-ryong answered at a confirmation hearing that the goal of housing policy was "short-term downward stabilization." How should we view the current situation where two prominent ruling party politicians consecutively state that the goal is downward stabilization of housing prices?

Let us briefly turn the clock back. The first real estate policy of the Moon Jae-in administration, launched in May 2017, was a demand suppression regulation that lowered the loan-to-value (LTV) ratio limit from the previous 70% to 60%. The first comprehensive real estate measure, the August 2, 2017 plan, further strengthened this by tightening capital gains tax regulations on multiple homeowners, adding more LTV restrictions, and reorganizing the subscription system around a point-based system. Subsequently, the Moon administration declared "suppressing speculative demand, protecting actual demanders, and housing supply" as the three objectives of housing policy, announcing related policies more than 20 times. Generally, the direction set in the early stages of policy tends to be reflected in subsequent policies.

Now, returning to the new administration. The first real estate policy of the Yoon Suk-yeol government is the coexistence landlord policy. This policy brought out the little-known coexistence landlord system as a defense against the possible surge in rents expected in the second half of this year. Following this, Daegu and Daejeon were removed from speculative overheating and subscription adjustment areas. Looking at these series of measures, it is clear that the new government is pursuing stability in the rental market and deregulation.

Examining the new government's housing policy further may provide hints for the next five years. Analyzing the presidential campaign pledges and the 100 tasks of the transition committee reveals that the direction of the new government's housing policy is quite clear.

First is the stabilization policy for the rental market. This includes a full review of the three lease laws, the revival of the housing rental business system temporarily abolished under the Moon administration, and the introduction of corporate rental housing operators (New Stay), which were considered the ultimate weapon for modernizing the rental market during the Park Geun-hye administration, to be utilized in the 3rd phase new towns. Second is market deregulation. Broadly speaking, this deregulation does not mean reckless easing but aims to eliminate excessive government intervention in acquisition, holding, and transaction processes, gradually liberalizing tax and loan regulations. Third is supplying housing where there is demand and changing the supply methods.

Considering these policies, even if the new government is market-oriented, unconditional boosting of housing prices is impossible. Especially during the gradual liberalization of the market, overheating in some areas and declines in others are inevitable. The key point is that the current government accepts this as a market function, and in that context, the "short-term decline" remarks by Mayor Oh and Minister Won are appropriate to interpret.

No government can stand idly by while asset markets fluctuate sharply up and down. The government also intervenes directly or indirectly in exchange rates and stock indices. Real estate is no different. During the COVID-19 phase, the government was a strong protector against global crises causing asset market declines. However, at this point, to restore market normalization functions, it no longer intends to provide support. The era of "every man for himself," under the good name of market autonomy, has reopened.

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