[The Editors' Verdict] Housing Supply Must Take Top Priority Amid Real Estate Policy Changes

These days, there are two main topics people talk about whenever three people gather: real estate or stocks. When discussing real estate, it’s mostly not about calculating investment returns but rather about how owning a home in one’s lifetime has become almost impossible.

Real estate prices, especially apartment prices in major cities including Seoul, have surged sharply since mid-2017. Comparing the distribution of apartment prices in August 2017 and May this year, the number of apartments priced under 600 million KRW has halved, those priced between 600 million and 900 million KRW increased by 10%, and apartments priced over 900 million KRW have doubled. Now, tenants find it nearly impossible to buy a home with just their wage income, and even with loans, acquiring a home is difficult. Since the only option left is subscription (cheongyak), a subscription frenzy is sweeping among the younger generation. Seoul’s housing supply rate is about 96%, which is lower than the national average of about 104%, and the homeownership rate is about 43%, also lower than the national average of about 61%, indicating a high number of multi-homeowners per household. In other words, some people own multiple homes.

First, benefits for rental business operators must be drastically reduced. The government granted benefits in 2017 for registering as a rental business operator, including reductions in acquisition tax and property tax, exemption from capital gains tax surcharges, application of long-term holding special deductions, exclusion from comprehensive real estate tax aggregation, and reductions in health insurance premiums. In September 2018, new standards for capital gains tax reductions on registered rental housing were established, comprehensive real estate tax was applied to newly acquired rental housing in regulated areas, and a 40% loan-to-value (LTV) ratio was applied to mortgage loans for rental business operators in speculative and overheated speculation zones.

Last month, measures were introduced to completely ban mortgage loans for rental business operators and allow cooperative member subscription through two years of actual residence in reconstruction complexes. During this period, the number of registered rental business operators increased from 261,000 in 2017 to 511,000 in the first quarter of this year, an increase of about 250,000, and the number of houses increased from 980,000 to 1,570,000, an increase of about 590,000. This means an increase of 2.4 houses per person. Although some tax benefits were removed in September 2018, the number of houses had already increased by 380,000 compared to 2017. Since rental business operators have already received sufficient benefits, it is now time to restore the original state.

Additionally, housing supply must be expanded. The number of apartment units moving in will drastically decrease to about 40,000 in Seoul this year and about 20,000 in 2021. Naturally, in a situation where housing supply is shrinking, winning a subscription is like hitting the lottery. The younger generation has no choice but to jump in. Existing projects such as street maintenance projects within Seoul, floor area ratio increases in semi-industrial areas, public rental housing near subway stations, and complex developments including public housing on idle land will take at least three years even if started immediately and are not large in scale. Therefore, conditions for large-scale reconstruction or redevelopment must be significantly eased to increase supply.

Furthermore, policies to prevent housing speculation must be introduced. The government should directly intervene in households owning two or more homes. Representative examples of direct intervention include the reconstruction excess profit recovery system, introduction of housing transaction reporting system, designation of speculative and overheated speculation zones, and the pre-sale price ceiling system, none of which can be considered bad policies for stabilizing housing prices. With the pre-sale price ceiling system currently in place, if reconstruction regulations are eased, the excess profit recovery system must be strengthened. The method of calculating the burden should be adjusted to reflect official land prices closer to market prices, similar to the comprehensive real estate tax.

Strong progressive holding taxes should be imposed on households owning two or more homes. The effective holding tax rate, which is the ratio of holding tax amount to the total privately held real estate value, is only about 20-30% compared to major countries like the UK, Japan, and France, and is much lower than the OECD average. With the development of real estate transaction data and the era of the Fourth Industrial Revolution, monitoring collusion among apartment households is also necessary.

Kim Sangbong, Professor of Economics, Hansung University