In the morning, we should know who will be sworn in as president in May.
He will have a lot to do, including a number of legacy issues from the previous administration.
One of the biggest challenges will be real estate. President Moon Jae-in has admitted his biggest political failure was in his handling of the real estate market, and his successor will have to clean up the mess.
Despite rolling out nearly 30 real estate policies, the Moon government failed to stabilize house prices and instead inspired a mad dash for apartments.
Three tenant protection laws actually had the opposite effect, with landlords raising prices ahead of the legislation.
Other challenges include those related to increased spending and the need to reform the national pension.
Some economists say one of Moon’s biggest mistakes was believing the government could control the markets.
Property professors and economists say the next government should work to make policies more predictable.
Here are tips for the next administration from: Kim Kyung-min, professor of urban engineering and real estate at Seoul National University; Woo Seok-hun, professor of economics at Sungkyul University; Yoo Hyun-joon, professor of architecture at Hongik University; and John Lee, CEO of Meritz Asset Management.
Q. What do you think of the policies of the administration?
Kim Kyung-min: First, the administration ignored market mechanisms. Despite the deployment of many policies, many have worked against the market, causing harm to individuals. Second, the policy makers were hypocrites. Even the president’s chief of staff had more than one dwelling. The head of legislation to protect tenants raised the rent for the apartment he owned. While they themselves acted on the market, the policies they created did not.
Woo Seok-hun: Due to rising real estate prices, the gap in asset ownership has widened.
Yoo Hyun-joon: The government built housing in areas that didn’t need it and tried to relocate people to those areas. People make their own economic decisions, but the government has tried to force people to live by government advice. Due to the forceful nature, the policies did not work.
John Lee: The government has failed to gain market confidence in the financial arena. Regaining trust is important. Unlike any other sector, Korean finance has still not reached the level of developed countries. It is necessary to build an economic system where massive amounts of money flow into the stock market.
Q. What would be the solution to the regional and real estate gaps?
Kim: When real estate prices rise, the asset gap between people widens dramatically. It’s hard to close the gap just with their monthly paychecks. The new government must create policies that middle and low income people can benefit from. Government policy should allow people from these groups to be able to rent houses at an appropriate rent.
Most of the country’s housing policies aim to increase the number of homeowners, not to remove the supply of housing.
Policies should aim for long-term financial support as well as increased supply.
People should be able to conduct their economic activities with a long-term plan. If the government lowers the loan to value ratio from 80% to 60% because house prices have jumped, only the wealthy will be able to buy homes.
Yoo: The new government must increase supply in areas where it is needed. Recently, on social media, there was a huge buzz about a rundown one-room apartment with a monthly rent of 250,000 won. One can wonder if the existence of such apartments in the center of Seoul is not the result of an excessive suppression of supply.
Yet, when the need for supply is mentioned, the government tries to solve the problem by building several million units with taxes paid by the population through public developers such as LH and SH. The new government should reject such a way of thinking.
Kim: Providing 2.5 million units is unrealistic. The housing promised by the candidates is mostly state-leased housing.
SH over the past 30 years has supplied 310,000 units. Each year, they supply about 10,000 units on average.
Half of the country’s population lives in the greater Seoul area. If 1 million of the 2.5 million units are to be built in the greater Seoul area, a minimum of 200,000 units will be built in Seoul.
This means that SH must build 200,000 units in five years, which is impossible.
And if half of the 2.5 million units are built outside the greater Seoul area, property prices in provincial areas will crash.
Since 2020, provincial areas have built a number of apartments.
It is necessary to control the number of apartments provided while monitoring the market.
I’m not saying don’t provide units, but the new government should send a signal and ease people’s anxiety by coming up with realistic numbers.
Yoo: Just as important as the number of promised accommodations is the variety of accommodations offered. Currently, the housing provided is too homogeneous.
This is real estate totalitarianism.
This is because there are too few suppliers.
Woo: When the government takes real estate measures, it mainly focuses on Gangnam first, then Seoul, then neighboring Gyeonggi and Incheon. However, half of the population lives outside these areas.
I hope the new government approaches real estate policies as an extension of regional economic policies, such as how the government uses different tax policies than the greater Seoul area or reflecting the different level of support for regional economies in its real estate policies.
This would help prevent the extinction of regional economies.
Q. Can people in their 20s and 30s get rich?
Lee: In order to resolve the imbalance of income and wealth, policies should make it easy for young people to build their financial wealth. The tax benefits are just as important.
While investors must individually take responsibility for their investment decisions, the country must help investors to have confidence in the security of investments.
Woo: Most young people don’t own apartments. So they invest in stocks and cryptocurrencies.
Kim: Last year, of the total number of real estate transactions conducted, 40% were by people between the ages of 20 and 30. Most of them bought the houses with loans.
They are at risk when the real estate market falls.
The government must continue to develop refinancing programs. For young people, interest rates on loans should be lowered or fixed interest should be offered.
Q. There has been a lot of talk about emergency Covid-19 relief through supplementary budgets.
Woo: There have been many extra budgets created, and yet support is always done with rough estimates. The government must be specific about how much to distribute and exactly where.
Although the damage caused to small traders is enormous, they are not the only ones.
It would be effective if support was offered to the tourism industry, the aviation industry and cultural enterprises.
Virus disruptions occur every three to five years, and we can expect another virus situation. These issues should not be overly politicized.
We need to create a social agreement on how to help those affected by the pandemic and follow up accordingly.
Q. How to reform the national pension?
Woo: When there are no elections, there is agreement on the need to improve the national pension fund, which is slowly running out.
But after winning the elections, they want to avoid pension reform.
Our population is changing. And it will be too late if we try to fix the national pension fund once it has dried up.
We have to repair the areas that need to be repaired even if we have to take losses.
We must seriously start thinking about merging separate pensions, such as civil servants’ pensions and the national pension fund.
We also need to think of other ways to include those who are currently unemployed but ready to enroll.
Lee: The most important factor for the national pension fund should be its independence. It is not right for a ministry to manage such massive investments, such as the national pension fund.
Its independence must be guaranteed without interference from anyone else.
It is also strange that there is a limit on the term of the person responsible for the investment of the national pension fund.
Q. What do you expect from the next president?
Kim: Real estate in a capitalist society is the greatest commodity that a person as an individual can own.
The next president should target social housing assistance to the middle and lower classes with an understanding of the market.
An era where government led in rented apartments is coming to an end.
We must recognize that it is time for private companies to enter the housing rental market.
While private companies should be allowed to build rental apartments, the government’s responsibility should be to prevent private companies from making excessive profits.
The president must also consider how to improve financial products such as REITs so that rental apartments built by private companies can be managed for the long term.
Yoo: The president should understand the basic instinct of people wanting to own their own home and not fight it. And through this understanding, real estate market policies should be created.
Not all requests should be characterized as speculative strength.
Woo: Korea’s economic indicators are good. But when you look closer, consumer prices are rising while monthly paychecks aren’t rising as fast. Housing prices have risen excessively.
Wages are expected to rise as much as the rate at which consumer prices have risen.
But there is a feeling of keeping wages low, which will affect people in vulnerable jobs.
Our country is heading towards a per capita income of $40,000.
Agreements could be reached on economic issues separate from political issues.
BY KIM TAE-HO [[email protected]]