The Peninsula

The Government Changes Tune on Housing Policy

 What Happened:

• President Moon Jae-in vowed to focus more on increasing housing supply to discipline runaway real estate prices.
• The government attributed the failure of its previous effort to deliver affordable housing to the growth of households despite the shrinking population.
• The administration plans to develop more housing sites near train stations in Seoul and surrounding areas with the aim of exceeding “market expectations.”

Implications: The South Korean government is responsive to policy errors, particularly ones that significantly affect approval ratings. Recent changes to housing policy reflect this trait. The Moon administration has approached the challenge of runaway real estate prices in Seoul by imposing price ceilings, limiting access to credit, and taxing households with multiple homes. However, these policies failed to curb the rising cost of living in the capital because it did not actively add new housing units. This negatively affected President Moon’s approval rating, which fell from 71% in early May 2020 (when he received credit for effectively responding to the COVID pandemic) to 39% in September 2020. Initially, President Moon suggested that the media’s negative portrayal of the government’s housing policy is partly to blame for the market instability. However, his recent speech suggests a strategic pivot.

Context: In addition to the government’s new focus on increasing supply over curbing demand, its past experience shapes its approach to building new units. Policymakers had previously pushed developers to build new housing units in satellite cities around Seoul to reduce housing demand in the capital. However, heavy traffic and insufficient public transportation connecting these new exurbs to Seoul’s city center discouraged people from moving to these new areas. As such, the administration is promising to build new housing units on transportation corridors that would appeal to working families.

This briefing comes from Korea View, a weekly newsletter published by the Korea Economic Institute. Korea View aims to cover developments that reveal trends on the Korean Peninsula but receive little attention in the United States. If you would like to sign up, please find the online form here.

Korea View was edited by Yong Kwon with the help of Sophie Joo. Photo from Stanley Young’s photostream on flickr Creative Commons.