Korea’s grim history of failed housing measures

Cho Hyun-suk

The author is the economy news editor at the JoongAng Ilbo.

This is already the fourth. Since the Lee Jae Myung administration took office just 14 months ago, housing supply measures have arrived at a breathless pace: a plan to expand housing supply on Sept. 7 last year, another to increase public housing in the Seoul metropolitan area on Jan. 29, measures to boost nonapartment housing on May 22 and, most recently, an Aug. 13 plan to rapidly increase housing supply and stabilize rental and sales markets.

Add tighter lending rules, tax revisions and follow-up measures, and Korea has effectively had a new real estate policy almost every month. The market response has been strong — but hardly positive.

Real estate measures were not always announced this frequently. Until the mid-1960s, Korea had little that resembled housing policy. With the country and economy devastated by war, reconstruction came first.

That changed as the Gyeongbu Expressway linking Seoul and Busan was built, followed by the third and sixth bridges across the Han River, now Hannam and Yeongdong bridges. They helped set the stage for Gangnam District's development. In 1967, a speculative land boom centered on Maljukgeori, today’s Yangjae-dong, swept Seoul.

Land that had cost several hundred won per pyeong (35.5 square feet) suddenly fetched thousands or tens of thousands. The government responded in May 1967 with Korea’s first real estate measure, the Temporary Act on the Suppression of Real Estate Speculation. It imposed a 50 percent tax on capital gains from property transactions. Today’s real estate capital gains tax, still a source of controversy in tax reform, originated there.

In 2007, late in the Roh Moo-hyun administration, the government information agency published “40 Years of Real Estate in Korea” (translated, 2007), chronicling the government’s battle against the belief that property prices could never fall.

The book counted 59 real estate policies between 1967 and 2007. Governments tried major interventions, including land transaction permits requiring government approval of a sale under Park Chung Hee, first-generation "new towns" intended to expand housing rapidly under Roh Tae-woo, the real-name property ownership system under Kim Young-sam and the comprehensive real estate holding tax under Roh Moo-hyun.

None broke Korea’s faith in property.

The book compared failed housing policy to a malfunctioning traffic light. Rules would tell people not to cross on red, only to change course and tell them to cross on red but stop on green. Whenever another property frenzy erupted, policymakers resorted to frantic hand signals to restore order.

The diagnosis was straightforward: Policies that should have been designed with decades in mind instead changed with immediate circumstances, increasing uncertainty and instability.

Two decades later, little has changed. Only unwanted records have been broken. The Moon Jae-in administration announced 28 real estate measures between 2017 and 2022, the most of any administration. It proved mainly that quantity does not guarantee effectiveness. Housing prices rose 9.9 percent in 2021, the biggest annual increase since the 11.6 percent recorded in 2007.

Unfortunately, the Lee administration appears to be following the same path. Housing measures emerge almost monthly, followed by familiar confusion.

The government unexpectedly proposed using Yongsan Park in central Seoul as part of its housing supply plans, but announcing the idea before securing agreement fueled political disputes instead of calming the market. Its tax reform proposal followed a similar pattern. A sharp tax increase targeting even owners of a single home who do not live in it triggered resistance within the ruling party, making another patchwork revision likely.

The stakes are much greater today.

According to the national balance sheet compiled by the Bank of Korea, the total market value of Korea’s housing reached 7.71 quadrillion won ($5.51 trillion) at the end of last year. That is nearly 10 times the 822 trillion won recorded in 1995, when the statistics began. The BOK’s national balance sheet underscores how deeply housing and other real estate are embedded in Korea’s national wealth.

In other words, controlling a volatile property market beneath a broken traffic light with frantic hand signals has become far more difficult than it was decades ago. Korea’s grim history of real estate measures is not over yet.