[Initial Reaction] Government Claims No Supply Shortage, Now Plans to Announce Supply Measures

Government Fluctuates Between Hot and Cold, Losing Trust
80% of Real Estate Market Driven by Sentiment
Need to Make Citizens Empathize with and Trust Real Estate Policies

"Future housing supply in the Seoul metropolitan area is sufficient" (July 19, Park Sang-woo, Minister of Land, Infrastructure and Transport) → "We will reconsider all policy measures from scratch to expand supply" (July 25, 1st Real Estate Supply TF Meeting by Ministry of Economy and Finance and Ministry of Land, Infrastructure and Transport) → "We will prepare additional supply expansion plans in a substantial manner" (August 1, 2nd Real Estate Supply TF Meeting).

This is the government's changing stance on housing supply within just half a month. They emphasized that supply was not insufficient, then suddenly announced plans to increase supply. While positions can change depending on circumstances, the government's credibility has significantly dropped due to this rapid flip-flopping.

There are other unreliable examples. The '3rd New Towns,' which the Ministry of Land, Infrastructure and Transport cites as a representative supply measure, is one such case. The scheduled move-in period, originally set for 2025-2026, was postponed to 2027 last year, drawing criticism from pre-lease applicants. Last month, the large-scale move-in period was delayed once more to 2029. Reasons for the delay include construction cost increases leading to reduced contractor profits, project financing (PF) failures due to high interest rates, and unsold units in provincial areas. Although there are reasons for the delays, the public is now skeptical to the point of disbelief, even if the government claims miracles.

A real estate expert I recently met said, "I expected this government to be different, but as usual..." He assessed, "At least they did not make strange remarks like the previous administration’s 'If apartments are bread, we will stay up all night to make them,' or reckless policies like 'banning loans for houses over 1.5 billion won.' Although the opposition did not cooperate, the direction to implement urban redevelopment measures and increase supply was correct." However, he pointed out, "When housing prices rise, they insist supply is not insufficient and have blamed the previous administration for over two years. In fact, supply is a long-term variable. Even if supply is expected to be insufficient in the future, there is no reason for such a concentration in Seoul apartments now. This situation arose because people no longer trust whatever the government says."

The most important aspect of the additional supply expansion plan to be announced this month is to include policies that the public can empathize with. On the 1st of this month, the government also stated, "We will introduce measures to drastically shorten redevelopment project periods and eliminate permit delays." However, given that project profitability has declined compared to several years ago, it is questionable how many redevelopment projects will readily move forward just because the government pushes them.

At times like this, the public sector must actively move to restore trust. For example, utilizing idle land can accelerate supply speed. If housing built on idle land is not released as public rental but sold, it can quickly address urgent needs. It is also essential to clearly and specifically disclose how much land compensation has been completed for the 3rd New Towns project and from which areas residents can move in sequentially.

Regarding jeonse (long-term lease) housing, reminding the public that there is sufficient existing housing stock in the metropolitan area and communicating this is another method. The recent rise in jeonse prices occurred due to a shortage of new housing. By signaling, "Although the desired new housing is not immediately available, existing housing is relatively easy to find, so please wait until apartment supply stabilizes," jeonse prices can be stabilized.

Apartment supply is a long-term battle. Even if permits are obtained immediately, effects will appear in as short as three years or as long as five years. Therefore, it is essential for the public to trust the government. The current overheating of the real estate market has worsened as confidence in policies has disappeared. The real estate market moves 80% based on psychology.