[The Editors' Verdict] Is It About Controlling Housing Prices or Restricting Supply?

Junho Hwang, Head of Construction and Real Estate Department

The 6·27 loan regulation is acting as an obstacle to housing supply. The loan limit for homebuyers has been capped at 600 million won, leading to widespread complaints that, in effect, people are being told not to apply for new apartments in Seoul.

According to the Korea Housing and Urban Guarantee Corporation, the average pre-sale price of private apartments in Seoul is 45.68 million won per 3.3 square meters. The pre-sale price for an 84-square-meter apartment easily exceeds 1.5 billion won. Even if a buyer takes out the maximum loan of 600 million won, they would still need at least 900 million won in cash to purchase the apartment. Unless one can rely on parental support or wins the lottery, it is a daunting amount for most people to afford their own home.

If demand for new apartments falls, prices should be lowered. However, construction costs are soaring due to rising prices across the board. Since construction costs are not decreasing, it is impossible to lower pre-sale prices. For construction companies whose survival depends on the success of their pre-sale projects, delaying supply as much as possible has become the most prudent choice. A representative from a construction company said, "After the announcement of the regulation, we decided to completely adjust our pre-sale schedule. We plan to postpone it until next year." The Housing Industry Research Institute also predicted, "It is important to pay attention to the impact that stricter loan regulations will have on the apartment pre-sale market in the second half of this year."

It is not just pre-sale schedules that are being pushed back. Reconstruction and redevelopment projects are also in disarray due to the new loan regulation. The moving expense loans, which used to be available up to 50% of the loan-to-value (LTV) ratio, have now been capped at 600 million won, the same as regular mortgage loans. There are growing concerns at each redevelopment site that securing funds may become difficult. One possible solution is for construction companies to provide additional moving expense loans. However, if construction companies provide credit enhancements, their debt increases, which negatively affects their financial performance and ability to raise funds.

There are an estimated 53 redevelopment projects in Seoul currently facing these challenges. In terms of households, about 50,000 units are now at risk of supply being suspended. The situation is so serious that the Ministry of Land, Infrastructure and Transport reportedly expressed concerns to the Financial Services Commission about potential supply shortages even before the loan regulation was announced.

There appears to be no drastic measure that can immediately resolve the housing supply shortage. Statistically, the supply shortage is likely to worsen. Since 2021, when housing starts reached 580,000 units, the number has dropped by nearly half, averaging 380,000 units over four years. In 2023, only about 240,000 units were started. Considering it takes three years from groundbreaking to completion, the actual supply of new housing next year is likely to decrease even further.

It is necessary to control housing prices and also to demonstrate the new administration's strong policy stance. However, trying to curb housing prices by restricting supply is self-defeating. If the fundamental cause of rising housing prices?insufficient supply?is not addressed, and is instead exacerbated, prices will inevitably rise again.

The external environment is also challenging. The Bank of Korea is watching for the right moment to cut interest rates, and the government has recently drawn up a supplementary budget of 31.8 trillion won to stimulate domestic demand, planning to spend 88% of it within three months. When liquidity is injected into the market, it tends to flow into real estate. It is worth reflecting on the recent remarks by Seoul Mayor Oh Sehoon: "If money is supplied to the market under the pretext of boosting the economy, there are concerns about whether real estate prices can be controlled."

This is not the time to be relieved just because the upward trend in housing prices has paused. To avoid repeating the mistakes of past progressive administrations that failed to control housing prices, the fundamental causes of price increases must be addressed. A concrete supply plan must be presented as soon as possible. President Lee Jaemyung also stated, "If you forcibly suppress housing prices, they will inevitably rebound."