Repeated short-term market curbs fail to tame housing market

View of apartments in Seoul on April 10. The average sales price of apartment unit in Seoul’s northern side of the Han River crossed 1.1 billion won ($740,000) for the first time amid tightened loan regulations and weak supply of housing rent. [NEWS1]

Upward pressure on Seoul’s housing market is intensifying despite stricter tax measures. A decline in listings amid higher tax burdens — which will intensify after temporary suspension of heavy capital gains taxes on multi homeowners set to expire in May — is pushing up prices, raising the possibility of a dual increase in both home prices and

jeonse

(lump-sum deposit) rents.

A survey of 25 experts from academia and research institutions by JoongAng Sunday underscores growing market anxiety. Some 64 percent of respondents projected Seoul home prices to rise by more than 3 percent after the tax relief ends, while only 8 percent expected a decline. All respondents said jeonse prices would increase.

Market data also diverge from policy expectations. According to the Korea Real Estate Board, Seoul apartment prices rose 0.1 percent in the first week of April. Despite a widening decline in the three Gangnam districts — Seocho, Gangnam and Songpa — price gains continued, supported by mid to lower-priced areas. Non-Gangnam districts such as Seongbuk (0.23 percent), Gangseo (0.25 percent) and Guro (0.23 percent) posted notable increases.

“Ending the capital gains tax relief alone has limits in prompting homeowners to sell,” said Lee Eun-hyung, a researcher at the Korea Research Institute for Construction Policy. “In Seoul, the upward trend has already spread to outlying areas.”

The limitations of short-term regulatory measures to suppress the housing market are becoming increasingly evident. According to the Korean Housing Association, more than 270 housing policies have been introduced since 1991, but their impact on stabilizing home prices has largely been short-lived. The repeated reliance on regulations, without addressing structural issues such as concentration in the Seoul metropolitan area and a shortage of supply in key locations, has limited their effectiveness.

“Housing policy is fundamentally a matter of the state’s role, but it has long remained focused on blaming the market and relying on short-term responses without sufficient reflection,” said Jin Mi-yoon, a professor at Myongji University’s Graduate School of Real Estate. “We need to move beyond vague notions of ‘supply’ and ‘stability’ toward more accountable and substantive policies.”

Signs show listings of houses up for sale at a real estate agency in Songpa District, southern Seoul, on April 9. [NEWS1]

Limited effectiveness

Each time the government has sought to artificially suppress housing prices, the market has merely paused before rebounding even higher — a cycle repeated through more than 270 real estate measures introduced over the past 35 years.

Critics say policy efforts have been overly focused on short-term price stabilization, rather than laying out a broader framework for housing welfare and strengthening supply based on real demand. In the JoongAng Sunday survey, 72 percent of respondents said the primary goal of housing policy since 1990 has been price stabilization. By contrast, expanding supply (20 percent) and improving housing stability (4 percent) ranked far lower as priorities. Analysts say the heavy emphasis on directly controlling prices has limited the government’s ability to more flexibly reform the underlying structure of the housing market.

Policy management has also lacked consistency. Since the Roh Tae-woo administration, housing policy has swung repeatedly between tightening and easing with each change of government. According to KB Financial Group’s research institute, mortgage regulations — including loan-to-value and debt-to-income ratios — have been revised more than 20 times since 2000, while key tax policies such as capital gains taxes have also been repeatedly adjusted under different administrations, undermining policy credibility.

Assessments of the effectiveness of regulation-driven housing policies are largely negative. According to the survey

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56 percent of experts said such measures had “some effect but were limited,” while 28 percent said they “caused market distortions and confusion.” Many noted that demand-suppression policies tend to have only short-term impact.

Korean President Lee Jae Myung speaks with Brazilian President Luiz Inacio Lula da Silva during their joint press conference after meeting at the presidential Blue House in Seoul, Korea, Monday, Feb. 23. [AP/YONHAP]

Regarding the duration of policy effects, 72 percent of respondents said they last between three to six months, with virtually none expecting them to persist for more than a year. This suggests that even strong regulatory measures have done little to fundamentally change market direction, serving instead to briefly slow momentum.

This pattern has also been repeated in actual market movements following policy implementation. After the August 2, 2017 measures, which designated a large number of areas as speculation zones and overheated speculation districts, Seoul apartment price growth slowed to 1.22 percent over the following three months. However, six months later, the rate had widened again to 6.63 percent, and a year later it surged to 15.58 percent.

A similar trend was observed after last year’s October 15 measures, which placed all of Seoul and 12 areas in Gyeonggi Province under land transaction permit zones. The growth rate, which had slowed to around 2.8 percent over three months, expanded again to 6.58 percent within less than six months, as of March.

“The loan regulations curbed demand in top-tier popular areas, but demand shifted to other regions where financing was still available, pushing up prices there,” said Nam Hyuk-woo, a researcher at Woori Bank’s Real Estate Research Institute. “That was later followed by a wave of upgrade-driven purchases, which in turn fed renewed price increases in higher-end districts.”

Skepticism over inconsistency

This trend also highlights the limitations of demand-suppression measures targeting specific hot spots or high-end housing markets. Regarding regulatory efforts focused on high-priced areas such as Gangnam, 48 percent of respondents said the impact was “limited,” while another 48 percent said the policies “produced greater side effects,” indicating low confidence in their effectiveness.

There was also considerable skepticism toward tax-based pressure measures, such as those involving property holding taxes. On strengthening taxes for high-value property owners, the most common responses were: “necessary but the target and scope need adjustment” (40 percent), “concerns over side effects” (32 percent), and “likely to have limited effectiveness” (20 percent). Overall, respondents expressed a strong view that taxation alone is insufficient to reshape market structure.

People pass by automated teller machines in Seoul on Feb. 22. [NEWS1]

“Criteria for high-priced housing and exemptions for non-resident single-homeowners should be made clear and simple,” said Jung Hyeon, chief real estate researcher at NH Investment & Securities. “The more ambiguous the standards, the greater the confusion and potential market instability.”

Why, then, do short-term fixes that deliver brief effects but recurring side effects continue to dominate policy? Experts most frequently cited the difficulty of expanding housing supply in the short term (44 percent) as the main reason. This is followed by a policy structure focused on short-term results (28 percent) and political burdens (24 percent). Analysts note that supply expansion takes time, while regulations produce immediate visible effects — leading to a policy framework increasingly reliant on the latter.

As for solutions to untangling this cycle, strengthening the foundation for quality housing supply was identified as the top priority. In the survey, 72 percent of experts pointed to supply expansion as the most important task for future housing policy.

“Policies that change with each administration inevitably limit the expansion of supply,” said Park Hap-soo, an adjunct professor at Konkuk University. “What is needed is a consistent supply strategy, including easing redevelopment regulations and expanding third-phase new town projects.”

This article was originally written in Korean and translated by a bilingual reporter with the help of generative AI tools. It was then edited by a native English-speaking editor. All AI-assisted translations are reviewed and refined by our newsroom.