Housing market anxiety belies normalization claim

Anxiety is growing in Seoul’s housing market. According to the Korea Real Estate Board on June 11, apartment jeonse (lump-sum deposit lease) prices in Seoul rose 0.32 percent last week, the steepest weekly increase since October 2015. The upward trend has spread across both southern and northern districts of the city, including Seongdong, Songpa, Gangbuk and Dobong. Cumulative gains this year are now more than five times higher than those recorded during the same period last year.

At a news conference marking the first anniversary of his inauguration, President Lee Jae Myung described the decline of the jeonse system as part of a normalization process and said the market was not experiencing a sharp surge in jeonse prices. Market indicators, however, suggest otherwise. Home prices are rising across Seoul, including in the Gangnam area. Apartment prices in Dongtan New Town in Hwaseong, Gyeonggi, jumped 1.98 percent in a single week, while gains in Songpa and Gangnam districts also accelerated.

Concerns have intensified since May 10, when higher capital gains taxes on owners of multiple homes were reinstated. Transaction volumes have fallen while prices continue to rise. The pattern resembles the latter years of the Moon Jae-in administration, when heavy taxation reduced listings and contributed to rising home and rental prices. The lesson was clear: Restricting transactions without expanding supply does little to stabilize the market.

President Lee has signaled that property holding taxes could be strengthened as early as July, arguing that current tax levels do not sufficiently curb speculative demand. Critics counter that Korea’s property tax burden is not especially low compared with the Organization for Economic Cooperation and Development average. Many analysts argue that the deeper causes of instability are supply shortages and policies focused primarily on suppressing demand.

The number of multiple-home owners has steadily declined in recent years under stricter tax policies. Korea has also experienced higher property taxes being passed on to tenants through increased rents, a side effect seen during both the Roh Moo-hyun and Moon governments. Yet the Lee administration appears determined to continue a demand-control approach.

As a result, borrowing to buy homes is accelerating. Household loans increased by 9.3 trillion won ($6 billion) in May, exceeding the pace seen before lending regulations were tightened in June last year.

Housing markets respond to policy credibility. Repeated efforts to suppress demand alone may deepen instability rather than ease it. The government should present a clear roadmap for expanding housing supply and support redevelopment and reconstruction projects. Strengthening the supply base remains the most practical way to stabilize both home prices and the rental market.