[Viewpoint] Housing Market Normalization Measures Expected from Presidential Candidates

The evaluation of the Moon Jae-in administration's real estate policy is reflected in the fact that, at this late stage of its term, the apartment price increase rate in the Seoul area has more than doubled, symbolizing its failure. Regardless of which presidential candidate ultimately gains glory, the Moon Jae-in administration needs the courage to break free from the quagmire of excessive regulations it has deeply entrenched itself in. While various issues require consideration, the three most important are rationalizing the policy stance toward multi-homeowners, normalizing the urban renewal projects in central Seoul that triggered housing market instability, and reversing the ill-advised path of rent regulation.

The most crucial choice among these is to move away from an obsession with the negative aspects of multi-homeowners and instead accept and utilize their positive functions. The punitive taxation on multi-homeowners, which was continuously strengthened during the Moon Jae-in administration, ultimately caused a balloon effect leading to price increases in overflow housing, suppressed urban housing supply due to restrained investment, and increased the burden of monthly rent and lease payments on ordinary citizens through the pass-through of tax burdens. Therefore, a rational normalization direction would be to abolish the excessive capital gains tax surcharges on multi-homeowners that reached an extreme in the July 10, 2020 measures, integrate the excessively progressive comprehensive real estate tax into property tax for normalization, and normalize the overly discriminatory acquisition tax on multi-homeowners. This normalization plan is also necessary to accommodate the positive role of multi-homeowners as investors during the upcoming market downturn, thereby mitigating a hard landing in the housing market and maintaining a stable housing market.

The next step is the repeal of the two lease laws. Since the enactment of the rent ceiling system and the right to request contract renewal in July 2020, the side effects predicted by experts have materialized, causing prolonged and serious instability in the monthly rent and lease market. Not only has the jeonse (key money deposit) price for new contracts risen to a severe level, but the prices observed in the market have formed a triple-tiered pricing system beyond the previously known dual pricing. Additionally, the shift to monthly rent contracts is accelerating, and even the previously stable monthly rents are soaring. Partial improvements to related systems cannot guarantee success. Ultimately, the repeal of the rent ceiling system and realistic supplementation of the right to request contract renewal are essential.

Finally, the alternative for expanding supply is the activation of urban renewal projects that can increase the supply volume of preferred housing types, such as apartments, in preferred urban areas. Ultimately, the active relaxation of reconstruction and redevelopment regulations is the most certain solution. Among these, the most important direction is to realistically ease the reconstruction development profit recovery system and fundamentally abolish the reconstruction safety diagnosis system. It is also necessary to seek reasonable alternatives for resuming projects in redevelopment zones that were excessively deregulated as part of the New Town exit strategy. The ultimate alternative for supply expansion through urban renewal projects is to raise the floor area ratio within the city center to a reasonable level through comprehensive adjustments of zoning districts. This should proceed as a city-wide zoning rationalization plan that increases the relative residential density in the Seoul metropolitan urban center, reducing social costs caused by wasteful commuting, rather than a piecemeal floor area ratio increase limited to a few station areas.

During the Moon Jae-in administration, too many reckless experiments were conducted in the housing market. Most of these experiments only caused textbook side effects that did not need to be confirmed. It is hoped that the new government formed by the presidential candidate who gains the final glory will wisely devise ways to avoid sinking deeper into the quagmire dug by this administration and find a way out.

Chang-Moo Lee, Professor, Department of Urban Engineering, Hanyang University