The government unveiled its housing supply plan last Thursday to drastically increase the supply of homes in Seoul and other metropolises under a public sector initiative. If the plan goes well, 836,000 new homes will be built nationwide, including 320,000 in the capital alone. The Moon Jae-in administration's policy shift, from controlling demand to increasing supply, is a step in the right direction.
Aside from the unprecedentedly large volume of supply, the new plan is different from previous measures in several ways. First of all, rather than private contractors, public developers will take the lead in swiftly carrying out the plan. To encourage the participation of landowners and homeowners in targeted areas, the government will provide incentives and ease various urban regulations. It will also guarantee optimal profits for participants while retrieving excessive development gains and expanding public rental homes.
However, there are many stumbling blocks to the plan's smooth implementation. Even if consultations between the central government, local administrations and the National Assembly proceed well, it will not be easy to harmonize the opinions of private participants who are in different situations and have differing interests. Policymakers should develop various inducements best suited to each area and open channels to reflect the residents' voices. Besides, large-scale development projects tend to fuel a rise in property prices if past experience is any guide, requiring pre-emptive anti-speculation steps.
As former construction ministers have pointed out in unison, the nation cannot resolve the housing issue overnight. Given the nature of the housing market, in which almost all Koreans can be considered contracting parties, no matter how good a policy is, it cannot be a panacea. The Moon administration's previous policy of focusing on regulation backfired by triggering panic buying. No less important than supplying new homes is facilitating transactions involving existing houses. Just as the government has made a bold turnaround from demand restraint to supply expansion, it needs to consider revising the real estate taxation system, including lowering the unduly high capital gains tax.