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SEOUL – With the Covid-19 pandemic falling off front pages and amid raging floods from the monsoon downpour, a frenzied debate is roiling South Korea’s chattering classes.
The discussion in coffee shops, editorial offices and ivory towers is over the rising prices of homes – most specifically Seoul apartments, the aspirational dwelling of choice for the South Korean bourgeoisie.
In the first mass resignation since Moon Jae-in became president in 2017, his chief of staff Noh Young-min and five senior secretaries offered to resign on August 7, to take responsibility for “recent situations.”
Media speculation has it that an ongoing brouhaha over real estate is the “recent situation” behind the carnage. The resignees declined to say if that were the case.
The resignations follow a spate of public criticism of senior government officials, including Noh, for owning multiple homes at a time when government policy is to contain, not profit from, soaring house prices.
Historically, Asia has long had issues with rapacious landlords. Megacities around the region have been plagued by soaring prices and related problems of the rich getting richer off, and the poor, who have no property, getting poorer.
Indeed, housing inequality was assessed as one of the reasons behind Hong Kong’s riots.
The issue has special resonance in a country where the wealth divide is intensely emotive – as witness the success of Bong Joon-ho’s dark class comedy Parasite.
And what makes the current South Korean imbroglio ironic is that real estate prices have soared more under the Moon government, which claims to represent the less well-off than under the two previous conservative administrations combined.
Now, with an empowered government unleashing more than 20 policy measures to suppress what one pundit calls “the biggest game in town,” some conservative voices are asking if South Korea is turning anti-capitalist.
Others are wringing their hands over a situation in which youth are unable to invest in their future, and worry that polices are punishing the rich, but not assisting the poor.
Since the 1960s, living and working in South Korea’s vast capital – sometimes dubbed “The Republic of Seoul” – has represented success. This is where the top schools, top jobs and top networks are. The perennial problem is housing.
In South Korea, stock markets rise and fall and banks are stuck in a low-interest era, but real estate is the bubble that never burst, making bricks and mortar the prudent investment of choice.
“The wealthy and the upper-middle class have not been able to freely export their capital and invest overseas to any great extent due to the lack of convertibility of the won, so most of their investments have historically had to be here,” said Hank Morris, an advisor to consultancy Erudite Risk who has been watching South Korean markets since the 1970s.
“Buying a flat and sitting on it was a surefire way of making money at far less risk than buying shares.”
In the well-to-do Seoul neighborhood where he lives, Morris notes there are about 50 real estate dealers, but only six brokerages. “Real estate,” Morris said, “has literally been the only game in town.”
This investment preference is bolstered by the belief that Seoul real estate prices only head in one direction.
“Housing prices in Seoul will never go down. They go up as time goes by,” said Kwak Geum-joo, a professor at Seoul National University, who believes that the surge in house prices in Seoul has created a national psychological problem.
Data supports the “only way is up” contention.
According to figures from realtor Real Estate 114, Seoul’s trendy Gangnam has seen apartment prices rise the most over the past decade. Compared with 2008, prices rose between 126% and 182%. The average price rise for 3.3 square meters between 2008 and 2020 was US$63,591.
In a country with an acute sensitivity towards social inequalities, “real estate speculation” has become demonized.
And as South Korea’s once soaring economic growth has slowed in recent decades, it has become increasingly difficult for young people to get their feet on the first rung of Seoul’s housing ladder.
This is particularly the case for the preferred housing option – a flat in the endless, numbered apartment blocks that are the capital’s most notable architectural feature.
“Typically the average person cannot spend more than a third of his take-home pay on housing because other expenditures are required,” said a Seoulite who requested anonymity.
“If the average person makes 3 million won, that means 1 million won for housing and mortgages and whatnot. How can an average person buy an apartment for 600 million won? It is just impossible.”
Matters have become radically better – if you are an owner – or worse if you are not under the left-leaning Moon Jae-in administration.
According to civic group the Citizens’ Coalition for Economic Justice (CCEJ), the median price of an apartment in Seoul has soared 52% during the first three years of Moon’s term. This compares with an estimated rise of 26% in the nine years of prior conservative governments.
This is hugely problematic for a government whose support base is predominantly young and liberal, rather than the middle-aged and conservative, and which prioritizes equality.
According to Statistics Korea, youth unemployment has exceeded 10% since May. The media is full of reports about how young people are seeking sudden financial windfalls from schemes investing in financial instruments or cryptos, rather than entering salaried drudgery.
The middle class is also under significant financial pressure.
As of December 2019, South Korea’s household debt-to-GDP ratio grew at the third-fastest pace in the world after Hong Kong and China, according to data from the Bank for International Settlements. Household debt has been growing faster than the economy since 2010, with 36 consecutive quarters of debt growth.
Since 2017, the pace of debt growth has been decreasing due to stricter lending regulations – itself a governmental measure to stabilize real estate – but has nevertheless continued to expand.
Many middle-class families, compelled to somehow save for retirement while paying some of the world’s highest education expenses, find themselves property rich but cash poor. This leads them to bank on capital gains earned through home sales to finance their retirement, or to leave their home as their only inheritance to their children.
That is tough enough. But what of those who do not own homes?
According to a report by the National Assembly Research Service, it takes more than 12 years for an average household living in Seoul to buy an apartment even if that household saves 100% of its earnings.
This results in a price to income ratio of 12.13 – 12 years, one month, three days.
This shows how extraordinarily difficult it is for a family living in Seoul to acquire a home at market prices. “I am concerned as somebody out of college needs the opportunity to have a home or a family,” said the Seoul resident. “The path to that is not available unless they have affluent parents.”
Against this backdrop, politicians from both sides of the house are feeling the heat.
In 2014, when the main opposition United Future Party, or UFP, was in power it passed a bill to ease restrictions on housing reconstruction. According to national broadcaster MBC, some UFP members used inside information to buy apartments in the area of the reconstruction.
Joo Ho-young, the UFP floor leader, is accused of making 2.3 billion won ($1.9 million) in profits on Gangnam property he bought in 2013, which doubled in price after the 2014 bill. Another UFP lawmaker, Park Deok-heum, earned 7.3 billion won ($6.1 million) in capital gains on two of his four houses in Seoul, but complained that his rising assets are offset by the taxes he has to pay.
And as the resignation of the Blue House staffers appear to show, it is not only the conservatives who are playing the game. Some members of the Democratic Party were also found to be multi-homeowners and have vowed to sell off their extra homes.
Does the human right to shelter override the capitalistic right to profit? Moon made his feelings on that clear in his New Year’s address when he asserted that residential properties should not be used as investment instruments, but as homes.
In recent weeks Moon’s government, which won an absolute majority of 176 in the 300-seat National Assembly in April’s legislative elections, has surged into top gear to suppress Seoul housing prices.
One measure after another has passed the House.
The government is targeting supply. Some 132,000 new public housing units will be added to the Seoul metropolitan area. Moreover, house floor-area ratios will be raised and the number of floors permitted will be increased from 35 to 50 in Seoul’s trendy Gangnam riverside area.
For tenants, a revision of the Housing Lease Protection Act offers increased protection, capping rent rises at 5%.
Multiple homeowners and those who speculate by flipping homes are being especially targeted. Revisions to real-estate and income-tax laws raise the rate on multiple homeowners from 1.2% to 6%.
Acquisition taxes will rise by 12% for homeowners who have three or more houses. Tax rates will soar to 70% if the housing ownership period is less than two years.
A revision of the Income Tax Act raises the rate on houses in areas where the housing price increases are more than twice the inflation rate, or where the subscription competition rate is more than five to one.
Conservative groups have been largely quiescent since the outbreak of Covid-19, but with the pandemic now largely contained, street politics are set to return this Saturday as right-wingers rally against Moon.
Meanwhile, the protesters’ fellow travelers in academia critique government moves on the grounds that they may not stabilize housing and are, moreover, anti-capitalist.
Tara O, a US-based conservative academic, critiqued the moves on ideological grounds.
“All these measures move South Korea toward socialism and are contrary to capitalism,” she wrote in an email to Asia Times. “All these efforts limit individual freedom more and more.”
O has monitored some of the more off-base bills being put forward that appear to criminalize capitalist practices.
“At least five ruling party lawmakers seem to be competing with each other to introduce the most absurd bills that severely infringe upon individual property rights and criminalize having more than one house,” she wrote.
The proposed bills include provisions for the jailing or fining of lawmakers owning more than one home, and promotion freezes for government employees for the same reason.
But given the proven ability of real estate to appreciate, even the harshest measures may not work.
“The government’s current efforts to stabilize the housing prices are counterproductive,” said Kwak, the university professor. “As people think there is no more effective way to invest than by buying a house in Seoul, the government will eventually fail at curbing housing prices.”
With Seoul so heavily invested in stabilizing prices, questions have arisen over its figures.
During a parliamentary hearing, Land, Infrastructure and Transport Minister Kim Hyun-mi said that house prices in Seoul had risen just 11% since 2017 – the year anti-speculation warrior Moon took office. That data came from the Korea Appraisal Board.
The Citizens’ Coalition for Economic Justice – a civic group that might usually be ideologically inclined to support a liberal government – shot back that Seoul’s overall house prices have actually risen over three times the government estimate, 34%, over the last three years.
The NGO cited a median sales price of different types of Seoul housing, as assessed in Kookmin Bank’s Housing Price Trend report, and accused the ministry of being misleading.
“The government has been taking inaccurate data and numbers on this issue.” Kim Heon-dong, head of the real estate construction reform division at the CCEJ, told Asia Times.
As a result, the government’s various real estate measures – all 22 of them, according to Kim – are aimed at the wrong target. They punish the rich but don’t help the poor, critics say.
“The government says it is raising taxes and restrictions on those who earn money in the real estate market,” he said. “But I want them to think about how to support people who do not have the money even to pay monthly rent.”
Among such people, the housing problem is one factor behind Korea’s low marriage and birth rates, the Seoul resident said. “I am afraid we are going to become Hong Kong and people are going to live in cages,” he said. “People are not having families.”
But many question whether any government can truly change such a deeply entrenched system. “Real estate is the biggest game in town,” Morris said. “In fact, it is the biggest financial game in the country.”