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Gangnam needs more housing

Sept 27,2018
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Expensive apartments in the posh Gangnam area of southern Seoul. [YONHAP]
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Kim Jong-yoon
The author is an editorial writer of the JoongAng Ilbo.

The real estate market relies on three wheels — money, tax, and supply and demand. Ample liquidity funnels money into the real estate market and fuels prices. Liquidity must be tapered through loan regulations or other tightening action. When speculative sentiment creates excess demand, it must be quenched.

The government raised taxes on owners of multiple or expensive residential properties. These are demand-side actions. Supply-side measures must follow. Properties are products. Prices rise if supplies are outpaced by demand. More housing must be built to balance the supply and demand.

The government announced its plan to increase housing supplies on Sept. 13. It sent a message to the market that housing supplies will be increased steadily around the capital. The question is whether they will be desirable apartments in key neighborhoods. The question is whether apartments will be built in the Gangnam districts of southern Seoul, the center of the overheated housing market.

There are many reasons behind runaway apartment prices in Gangnam. But the government is largely to blame. Gangnam is the most sought-after area for residents in Seoul due to the upscale surroundings and good schools. Prices are high because of unmet demand. Increasing supply is a simple solution. But except for the greenbelt zone, there is little land left to build new homes in the three hot Gangnam districts. The remaining option is to rebuild aging apartment complexes.

But the government has restricted redevelopment. Because it has capped supply, prices have jumped. Under the pretext of fending off speculative forces, the government has closed off “bridges” to Gangnam. As a result, the Gangnam district has turned into a more exclusive area, making the rich in the affluent neighborhood even richer. Homeowners in Gangnam have the government to thank for making them super-rich simply because they own apartments there.

Those who handle government real estate policy are oblivious to reality. Announcing real estate measures in August last year, Kim Soo-hyun, the senior presidential secretary for social affairs, declared that housing supply is not short in Gangnam. He brushed off the arguments about supply shortages, claiming that new housing supplies in and around Seoul for the year and the following year were at record highs and that permissions for redevelopment in Gangnam tripled over the last several years. He refused to connect supply problem to the market instability and insisted on the need for a clampdown on speculative demand.

Data disclosed by Rep. Kim Hyun-ah, a lawmaker from the opposition Liberty Korea Party, tell a different story. New housing additions in Seoul totaled 68,000 last year. Since 47,000 homes were destroyed for redevelopment, there was a net gain of 21,000 apartments — just half of the net average gain of 46,000 over the previous five years. In Gangnam’s four districts, 15,000 apartment units were added last year while 17,000 units were destroyed, meaning housing supplies decreased. The housing supply ratio in Seoul as of 2016 reached 96.3 percent.

All efforts to decentralize the housing demand for Gangnam flopped. The creation of large suburban developments near Gangnam or around Seoul failed to persuade people to move out of Gangnam. The actions only invited new demand. The newly created suburban towns in Pangyo and Wirae in satellite areas are the byproducts of this. The latest new measures also neglected to increase building in the Gangnam area. The essence of the issue is again missing.

Authorities must allow high-density developments in Gangnam residential areas. They can mandate allocations for public housing if they fear excessive profit-making. The government has allowed greater residential shares in commercial and semi-commercial areas on the condition that half of the housing supplies are reserved for affordable housing. The same terms should be extended to residential areas. Prices can rise further in the short term. But in the longer run, prices will plateau when supplies are sufficient. The market will find balance if supply meets demand in spite of speculative forces. To catch a fish, one must go to the river or sea, not the mountains.

JoongAng Sunday, Sept. 22~23, Page 34