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(EDITORIAL from Korea Times on Aug. 5)

All News 07:47 August 05, 2020

New housing supply plan

Regaining market confidence key to success

The Moon Jae-in administration has come up with a new anti-speculative housing package aimed at building 132,000 homes in Seoul and its surrounding areas. One of the key measures is to ease restrictions on the reconstruction of aging apartment buildings to increase the home supply.

We positively assess the package, the 23rd of its kind under the Moon government, although it came belatedly. The reason is that the administration has shifted its policy from suppressing demand to expanding supply. It has so far failed to bring skyrocketing real estate prices under control apparently because it focused on raising property-related taxes and tightening mortgage ceilings.

Those restrictive measures have only backfired as people keep rushing to buy homes to seek relatively high rents and make handsome capital gains amid record-low interest rates and excess liquidity. But Moon and his policymakers had refused to pay heed to the market experts who called for increasing housing supply.

Announcing the package Tuesday, Finance Minister Hong Nam-ki said the authorities will double the floor area ratio to 500 percent to enable reconstruction projects to build far more homes. At the same time they will allow such projects to build high-rise apartments of up to 50 stories, compared with the current ceiling of 35.

Yet these deregulatory steps will only apply to building projects where a large portion of the new apartments will be supplied for public rental housing for those without homes, and sold to newlyweds and young adults. Hong described this experimental policy as a "high-density reconstruction plan" jointly pushed by private construction companies and public entities such as the Land & Housing Corp. (LH) and Seoul Housing & Communities Corp. (SH).

The plan is seen as a novel idea to build and supply more homes in a limited land space, especially in the affluent residential areas of southern Seoul. By promoting joint private-public reconstruction projects, the government plans to supply 50,000 apartments by 2025.

However, no one can tell if the plan will be good enough to cool the overheated housing market. Most owners of aged apartments in southern Seoul are reluctant to accept the government-proposed reconstruction projects because they do not want to allocate part of their to-be-built apartments for public rental housing.

Excessive government intervention in any reconstruction projects could be a recipe for failure. Thus, the liberal Moon administration needs to respect market principles and devise market-friendly policies if it really wants to win the fight against runaway housing speculation.

The first thing officials should do is to regain market confidence and the public's trust in their anti-speculative policies. Most of all, they should also admit their policy blunders and apologize for the railroading of bills aimed at raising property and capital gains taxes through the National Assembly.

Policymakers should realize that the passage of three bills aimed at protecting tenants is bringing about a surge in rents without stabilizing the housing market. In a nutshell, they are out of touch with reality. Nevertheless, we hope that the new anti-speculation package will be the last one needed.


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