Housing Crises and Policy Transformations in South Korea

Abstract

South Korea has witnessed remarkable economic development since the 1960s. Its economic growth rate has few parallels. However, behind this facade of growth and progress, a chronic housing shortage in the capital region, declining owner-occupation, rising housing costs, and polarisation in housing conditions between the better-off and the worse-off clearly illustrate the increasing impasse and crisis in housing that Korea has faced. The Asian financial crisis of the late 1990s and the more recent global financial crisis shocked the Korean housing market. Immediately after each crisis, the housing market experienced a serious recession and a sharp drop in prices. This paper addresses the seriousness of the impact of the financial crises on Korean housing conditions and how the Korean government reacted to the housing crises. It also discusses the benchmarks over the years and how pressing exigencies in the last decade have led to dramatic transformations in housing policy.

Key Words:

• Housing crisis
• financial crisis
• policy transformation
• South Korea

Acknowledgement

This research was supported by the Chung-Ang University Grants in 2010.

Notes

1. The Korean government conducts the census every five years. The latest census was taken in 2005.

2. The MOCT was renamed the Ministry of Land, Transportation and Marine Affairs after February 2008.

3. The Seoul Metropolitan Region has three administrative districts: Seoul, Incheon, and Gyeonggi-do.

4. Chonse is a widely practiced form of housing tenure in Korea, accounting for approximately 38 per cent of the total housing stock in the Seoul Metropolitan Region. Chonse is a rent system in which the tenant pays a lump sum to the landlord and receives the same money back when he or she leaves the rental unit. The earned interest on the Chonse constitutes the landlord's rental income. The lump sum deposit of key money is made at the beginning of the tenant's occupancy; the key money is fully refunded at the end of the contract period. The landlord usually invests this fund, and the earned interest represents the imputed rent. Landlords benefit during prosperous times by investing the deposit, generating good returns. Renters also benefit by not having to make monthly payments for the duration of the contract.

5. The bubble-seven areas are Gangnam, Songpa, Seocho, and Mokdong in Seoul and Bundang, Yongin, and Pyeongchon in Gyeonggi Province. The government has identified speculative investors as the main reason for the increases in house prices in these areas.

6. A total of 148,800 lots, representing approximately 156 million square meters, were traded in November 2008, which was a 22.3 per cent drop from the volume seen in the previous month and the lowest level since February 2001.

7. In 2008, only homes valued at 600 million won or more in the three popular districts in southern Seoul are subject to the 40 per cent DTI cap. A 60 per cent DTI ratio applied to home buyers in the Gyeonggi and Incheon areas.

8. This is an urban redevelopment project (the ‘revitalization or regeneration’ plan) devised by the Seoul City government; it aims to build eco- and dweller-friendly communities and has been in effect since 2002.

9. The tragic death of five protesters and a policeman in a fire in Yongsan in January 2009 (an administrative district in Seoul) left many people criticising the eviction process of Seoul City's urban redevelopment projects. The fire broke out during a police crackdown on squatters demonstrating for more compensation for their eviction from a commercial building slated for redevelopment. Civic groups and alliances of evictees have been staging rallies ever since, urging the government to devise better redevelopment policies.

10. Korea's liberalisation index increased from 65.0 in 1997 to 85.1 in 2006, a level comparable to that of Japan or the U.K.