Real estate and housing prices are major political issues dominating South Korean domestic political debate in the run-up to the March 9 presidential election. Many of President Moon Jae-in’s policies aimed at stabilizing the housing market have largely failed to deliver their intended results. Debates over real estate policy will have a consequential impact on the 2022 presidential election outcome; accordingly, real estate policy was the first issue selected for discussion in South Korea’s first official four-way presidential debate held on February 3, 2022.
Origins of the Real Estate Issue
Real estate and the unstable housing market have served as a source of domestic turmoil in South Korea, particularly in recent years. Unlike the United States, where economic interests are dispersed among major cities outside of the capital and spread across the continental United States, Seoul is not only the capital city but also represents the commercial, financial, and administrative hub for South Korea. The geographic concentration of half of South Korea residing in Seoul has created high demand for the population to live and buy housing in the metropolitan area, yet supply remains limited and unable to adequately meet rising demand.
The Jeonse rent system, unique to South Korea, has further contributed to the increasing housing prices of the greater Seoul area. Jeonse involves tenants paying a lump-sum deposit prior to moving in, rather than monthly rent, and receiving this amount back in full once the rental contract is up. This system allows landlords to accumulate wealth through their own investments as they purchase and rent out apartments within in-demand locations with the Jeonse deposit, an investment practice known as “Gap Investment.” Real estate speculation inflates housing demand as regular homebuyers and investors compete for an already-limited supply of homes, driving up prices in response to the higher-than-usual demand.
Since his inauguration, one of President Moon Jae-in’s top priorities was to stabilize the housing market by vowing to not “lose in the war against real estate speculation.” President Moon and the Ministry of Land, Infrastructure, and Transportation (MOLIT) introduced a two-pronged policy of controlling speculative demand to restore “real demand” and stabilizing housing units for underprotected households such as the low-income class, newlyweds, young adults, and the elderly. Although real estate speculation and housing price increases were present during previous administrations, the Moon administration specifically targeted real estate as an instrument for addressing income inequality and protecting genuine homeowners against speculation-driven economic practices.
President Moon Jae-in’s Policies on Real Estate
There are two main policy directions for addressing the housing market, largely represented by the respective positions of the two largest political parties in South Korea. The opposition People Power Party (PPP) emphasizes large-scale economic growth by focusing on increasing housing supply, empowering the private sector, decreasing government involvement, and loosening restrictions in the housing market. Meanwhile, the ruling progressive Democratic Party (DP) has traditionally primarily focused on stabilizing demand by implementing public sector-driven and “real demand-oriented” reform that strictly regulates speculation through tightened restrictions, loan regulations, and heavier taxes for multiple homeowners.
Initially, the Moon administration implemented DP-favored policies by prioritizing government-led measures aimed at reducing Seoul’s inflated demand and making housing more affordable for the low-income class. Throughout his administration, President Moon has introduced and implemented twenty-five different real estate policies. These measures have involved the tightening of rules for mortgage loans, increasing property taxes for multiple homeowners, and regulating Jeonse loans for apartments in designated “speculative” zones.
However, these demand-centered policies have failed to stabilize the housing market, and many of them have had the opposite effect. Rather than closing real estate loopholes exploited by investors, the policies have primarily hurt regular homeowners and the lower class. Numerous economic experts in Korea have argued that President Moon’s housing policies do not properly address the root cause of South Korea’s real estate issue. They discuss how policies aimed at decreasing demand must be accompanied by policies to increase supply; simply regulating real estate demand will lead to pent-up demand that increases home prices in the long-run. While MOLIT has reported a 17 percent increase in average market prices for Seoul apartments since the start of the Moon administration, independent reports indicate that this number could be anywhere between 75 and 93 percent, calculating that the price of a thirty-pyeong (roughly one thousand-square feet) apartment has doubled in the four years since President Moon took office.
Due to the failure of the demand-driven policies, President Moon announced in January of 2021 that the government would shift away from restricting speculation and toward increasing the housing supply. MOLIT announced the addition of 830,000 residence units to the housing market by 2025, the single largest increase of housing units by any administration.
While housing prices have fallen in recent weeks, the first decline in twenty months, due to the increased interest rates and tighter lending regulations, it remains to be seen how real estate prices will fare leading up to the March 9 presidential elections and into the next administration.
Candidate Policies and Impact on the Presidential Election
Ruling DP presidential candidate Lee Jae-myung has attempted to distance himself from the Moon administration’s real estate policies by criticizing the failed attempts of the administration to curb demand and apologizing to voters on behalf of the party. While continuing the DP priority of reducing speculation, Lee has placed a greater emphasis on easing regulations to increase housing supplies. On January 23, Lee unveiled his real estate policy and pledged to supply 3.1 million homes nationwide, 480,000 of which would be concentrated in Seoul and 30 percent of which would be allocated to young homebuyers. Lee has also proposed the introduction of a “public land ownership tax,” which would impose higher taxes for landowners proportionate to the property value, and the temporary easing of property taxes for multiple homeowners to incentivize the selling of second or third homes.
As the opposition PPP presidential candidate, Yoon Seok-youl is particularly critical of the Moon administration’s real estate policies, labeling the housing crisis a “man-made disaster.” Yoon has promised, if elected, to reduce government interference in the housing market and transfer control to the private sector. In August of 2021, Yoon announced his real estate policy of supplying 2.5 million housing units across the country, 1.3 million of which would be located in Seoul and 300,000 of which would be provided for homebuyers in their twenties and thirties. Yoon has also considered reforming the comprehensive property tax system by combining with the basic property tax and providing a tax exemption for single homeowners.
With the younger generation constituting the most influential group in the upcoming March 9 presidential election, the housing crisis remains an issue at the forefront of voters’ minds. A January 2022 Gallup poll shows that 32 percent of Koreans believe the real estate issue should be number one priority for the upcoming administration, tied with the issue of economic recovery, and nearly half of voters in their 30s and those living in Seoul point to the housing market as the most pressing issue. A November 2021 Korea Economic Daily poll indicates that the Korean public prefers policies that reform the tax system (25.6 percent) and increase public housing supplies (20.8 percent) for stabilizing the real estate market. As younger voters delay plans to move out from living with their parents and buy their own homes due to rising real estate prices, the housing policies of both candidates will remain an influential issue that not only affects the election outcome but will serve as the main issue facing the next administration.
Jennifer Ahn is the research associate for Korea studies at the Council on Foreign Relations.