[Insight & Opinion] The Solution to Seoul's Housing Prices Lies in Transportation Infrastructure

As land transaction permit systems and loan regulations have failed to curb housing prices in Seoul, policymakers are now preparing measures to expand housing supply. However, simply increasing supply is also insufficient to stabilize Seoul's housing market. What, then, is the solution to stabilizing housing prices in Seoul? The answer can be found by examining why only Seoul’s housing prices continue to rise, unlike other regions.

The main reason for the persistent rise in Seoul’s housing prices is the city’s superior transportation infrastructure, which continues to drive up housing demand. Although the government has created numerous new towns in the greater metropolitan area to increase housing supply, it has not expanded the transportation infrastructure that connects these areas to Seoul. Ironically, the more housing is supplied in the metropolitan area, the higher Seoul’s housing prices climb. This is because, while the roads leading into Seoul remain unchanged, the construction of new towns increases the number of people and vehicles commuting from the metropolitan area to Seoul, worsening traffic congestion and further boosting the demand to move into Seoul.

To address the rising demand for housing in Seoul, the government is now pursuing plans to increase housing supply within the city itself, rather than in new towns. This includes redevelopments, reconstruction projects, and lifting greenbelt restrictions to boost supply and stabilize prices. While such measures may temporarily stabilize prices, they cannot fundamentally resolve the rapidly growing demand for housing in Seoul, especially since the supply through reconstruction is limited. If supply in Seoul increases, traffic congestion within the city is likely to worsen, making it even more difficult for those living in metropolitan new towns to commute to their workplaces in Seoul. As a result, demand for housing in Seoul will increase even further. Ultimately, neither new towns in the metropolitan area nor reconstruction projects can effectively stabilize Seoul’s housing prices.

The solution lies in dispersing demand for housing in Seoul. This can only be achieved by expanding transportation infrastructure that provides access to the city. Current measures such as the land transaction permit system, loan regulations, and higher property taxes have failed to reduce the growing demand for housing in Seoul. Like other advanced countries, it is essential to ensure that living in the metropolitan area is not significantly less convenient than living in Seoul in terms of transportation. While other aspects of urban infrastructure, such as education and retail, are also important, transportation infrastructure is most closely linked to housing demand. Policymakers claim to be expanding access to Seoul with the Great Train Express (GTX), but this alone is not enough. It is necessary to expand aboveground and subway railways, roads, and tunnels to resolve the bottlenecks caused by bridges and tunnels narrowing at Seoul’s boundaries, thereby alleviating traffic congestion. Although expanding transportation infrastructure takes time, even the announcement of such plans by the government can have a significant effect in dispersing housing demand in Seoul by shaping public expectations. Cooperation between Seoul and Gyeonggi Province is also crucial for this effort. Advanced countries have addressed this challenge by adopting metropolitan governance models that broaden administrative boundaries.

Stabilizing housing prices is one of the most important policy priorities for the current administration. If housing prices rise in Seoul, prices in the metropolitan area and other regions will eventually follow, and the polarization of housing prices will further deepen wealth inequality. In addition, rising prices of essential goods like housing trigger wage increases, which can lead to inflation, weakened industrial competitiveness, and ultimately, low economic growth. Housing is a complementary good that can only fulfill its function when combined with transportation infrastructure. Policymakers must improve current housing policies that focus solely on supply without expanding transportation infrastructure. Considering the economic environment of low growth and declining population due to low birth rates, it is more necessary to transform existing metropolitan housing into homes equipped with transportation infrastructure, rather than simply increasing supply through new town construction. By focusing housing policy on expanding transportation infrastructure that provides access to Seoul, housing demand in Seoul can be dispersed and prices stabilized.

Kim Jeongsik (Professor Emeritus, Department of Economics, Yonsei University)