This briefing comes from Korea View, a weekly newsletter published by the Korea Economic Institute. Korea View aims to cover developments that reveal trends on the Korean Peninsula but receive little attention in the United States. If you would like to sign up, please find the online form here.

What Happened

• Gyeonggi Province Governor Lee Jae-myung and former conservative politician Yoo Seung-min exchanged barbs on social media over whether the incumbent administration has given up on economic issues.
• This comes as controversy mounts over the lack of public relief for delivery workers who are being overworked by the retail industry.
• The government’s failure to halt runaway housing prices continues to receive heightened attention, prompting policymakers to consider rolling back property taxes.

Implications: Despite concerns ranging from the ongoing pandemic to Pyongyang’s diplomatic intransigence, economic issues dominate the political discourse in South Korea. Housing unaffordability elicited the most scrutiny. Notably, a majority of survey respondents in their 20s and 30s – a cohort that strongly supported President Moon Jae-in in the 2017 election – expressed dissatisfaction with the government’s efforts to rein in real estate prices. Simultaneously, the government has not satisfactorily addressed concerns of marginalized workers who are overworked and underprotected by the current system. In this environment, the social media exchange between Governor Lee Jae-myung and Yoo Seung-min may foreshadow the central debate in the upcoming 2022 presidential election.

Context: The focus on bread and butter issues marks a shift in political discourse since President Moon began his term in 2017. The previous election came on the heels of popular protests against the previous administration’s corruption. Engagement with North Korea also loomed large in the first two years of President Moon’s term as Pyongyang first escalated tensions and then made peace overtures. As late as Spring 2020, the nation’s focus was on the pandemic – with the electorate rewarding the ruling party with a near-supermajority on the merits of the government’s handling of the COVID outbreak. Nonetheless, scrutiny from both the public and opposition parties are now focused on the government’s handling of the economy.

Korea View was edited by Yong Kwon with the help of Sophie Joo, Sonia Kim, and Chris Lee.

Picture from the user Republic of Korea on Flickr 

This briefing comes from Korea View, a weekly newsletter published by the Korea Economic Institute. Korea View aims to cover developments that reveal trends on the Korean Peninsula but receive little attention in the United States. If you would like to sign up, please find the online form here.

What Happened

• President Moon rejected the option of lifting development restrictions on greenbelt zones to resolve housing supply shortages in Seoul and other densely populated cities.
• There is a lack of consensus within the ruling Democratic Party on the deregulation of these protected green areas where the construction of housing is not permitted.
• This administration’s decision came after a recent poll showed that 60 percent of South Koreans disapprove of building more homes on the greenbelt to stabilize the real estate market.

Implications: The public’s antipathy towards housing development in protected green areas revealed eroding confidence in the government’s commitment to consistent housing policy. While adversarial polls reflect some community’s desire to preserve the environment, they also highlight dissatisfaction at what people see as an inadequately-considered approach to housing. Ironically, the government’s reversal on green zone development may exacerbate this distrust as it took merely a week for the administration to consider and then walk back on this policy.

Context: In an effort to curb property speculation, the government recently announced it would supply new homes in Seoul and its surrounding areas by easing construction rules and making more land available. Rather than developing greenbelt zones, the administration decided to look for alternative options such as national and public facility sites as possible housing sites. In a separate move, Moon instructed for residential development to take place in a military country club located in Seoul.

Korea View was edited by Yong Kwon with the help of James Constant, Sophie Joo, Sonia Kim, and Chris Lee.

Picture by Hikaru arai from Wikimedia Commons

This briefing comes from Korea View, a weekly newsletter published by the Korea Economic Institute. Korea View aims to cover developments that reveal trends on the Korean Peninsula but receive little attention in the United States. If you would like to sign up, please find the online form here.

What Happened

• In response to the rapidly rising cost of housing in Seoul, the National Assembly passed a new bill that allows tenants to extend their contracts and placed a cap on the amount that rental deposits could be increased.
• However, observers expressed worry that this may lead landlords to favor monthly rental contracts over the traditional “jeonse” payment in which renters pay a lump-sum for their long-term lease and receive the deposit back when they vacate the space.
• According to polling in June, 57.1% of people in their 30s said that the current government’s housing policy is “untrustworthy.” This has been the main headwind dragging down the Moon Jae-in administration’s public approval rating.

Implications: The Korean government’s reliance on regulatory interventions to stabilize the housing market suggests that authorities are unwilling to see scarcity as the fundamental root of the problem. This conforms with President Moon Jae-in’s suggestion in his 2020 New Year’s press conference that the media’s negative portrayal of the government’s housing policy is partly to blame for the market instability. The administration’s skepticism may be further strengthened by the fact that while buying a house may be prohibitive for the average Korean, the cost of housing as a share of disposable income remains far lower in Korea compared to other countries in the OECD.

Context: This is not to discount efforts by the Korean government to both increase supply and decrease demand for housing in Seoul. Public policy has pushed developers to build new housing units in satellite cities. However, heavy traffic and insufficient public transportation connecting these new exurbs to Seoul’s city center have discouraged people from moving to these new areas. Simultaneously, the government has pushed to relocate major public institutions to Sejong City and elsewhere in the country; thereby, reducing the pressure on the capital to supply housing for its employees. However, these measures are unlikely to significantly shift the country’s center of gravity away from Seoul.

Korea View was edited by Yong Kwon with the help of James Constant and Sonia Kim.

Picture from user Chris Harber on Flickr

This briefing comes from Korea View, a weekly newsletter published by the Korea Economic Institute. Korea View aims to cover developments that reveal trends on the Korean Peninsula but receive little attention in the United States. If you would like to sign up, please find the online form here.

What Happened

• The ruling Democratic Party reintroduced a proposal on the floor of the National Assembly to relocate the presidential office, the National Assembly, and other government offices from Seoul to the administrative city of Sejong.
• An earlier version of the plan had been ruled unconstitutional by the Constitutional Court in 2004.
• According to a poll conducted by the Democratic Party, 62 percent of respondents supported the relocation proposal, while 33 percent were opposed. The remaining five percent did not answer.

Implications: The government may choose to pursue policies with economic framing that attract popular support even if they carry adverse legal precedents. Widespread public backing for the relocation of the capital comes as South Korean citizens express growing frustrations with rising real estate prices in Seoul. In response, the ruling party explicitly advanced the proposal to elevate the political standing of Sejong City as a means to stabilize housing costs in Seoul. Building on the hypothesis that real estate prices in the capital region are weighed down by too much demand, the government also announced new plans to add more units to the housing supply.

Context: The Democratic Party maintains that the relocation of key state institutions to Sejong City is a longstanding policy priority of the progressive wing. Former President Roh Moo-hyun tried to push for a new administrative capital in the Chungcheong region as a way to address South Korea’s growing urban-rural divide. Even though he was unsuccessful in moving the entire central government, Roh managed to relocate most of the ministries and agencies to the newly-founded planned city of Sejong. Also echoing their past positions, the conservative opposition maintains that the relocation of the capital diverts the public’s attention from the government’s housing policy failures.

Korea View was edited by Yong Kwon with the help of James Constant and Sonia Kim.

Picture from flickr user Byeong Min Park

This briefing comes from Korea View, a weekly newsletter published by the Korea Economic Institute. Korea View aims to cover developments that reveal trends on the Korean Peninsula but receive little attention in the United States. If you would like to sign up, please find the online form here.

What Happened

• Although the government announced a new real estate policy on June 17, the unabated increase in housing cost attracted criticism from left-wing figures and groups.
• Adding to the growing dissatisfaction, research by news agencies revealed that many high officials were multi-homeowners. This prompted President Moon Jae-in to strongly urge senior government figures to sell any additional homes they own.
• According to polls released on June 24, 57.1% of people in their 30s said that the current government’s housing policy is “untrustworthy.” The 49.9 percent of the same cohort also responded negatively to the overall direction of the government’s economic policy, overtaking negative sentiments of respondents in their 50s.

Implications: More than challenges associated with managing South Korea’s ties with the United States or North Korea, disciplining Seoul’s housing market remains the issue that consistently catalyzes the most public scrutiny against the Moon Jae-in administration. The soaring real estate market has been a stumbling block for the administration since it took office in 2017. Critics point to its over-regulation of the market as the source of more intense speculative behavior and cost of living inflation for people without homes. As the Moon administration heads into the second half of its five-year term, the failure to address housing price volatility may erode the public mandate it gained in the April 15 legislative election.

Context: The Moon government’s strict real estate regulation draws on the policies of the previous progressive administration under President Roh Moo-hyun. The Roh administration introduced comprehensive real estate holding tax and implemented strong real estate regulations. However, it failed to control speculative behavior in the market. As a consequence, real estate prices continued to rise and created an opening for the conservative opposition to characterize progressive as “economically incompetent.”

Korea View was edited by Yong Kwon with the help of James Constant, Sonia Kim, and Ingyeong Park.

Picture from user Chris Harber on Flickr

This briefing comes from Korea View, a weekly newsletter published by the Korea Economic Institute. Korea View aims to cover developments that reveal trends on the Korean Peninsula but receive little attention in the United States. If you would like to sign up, please find the online form here.

What Happened

• President Moon Jae-in placed emphasis on stabilizing the real estate market in his New Year’s press conference. He stressed the importance of the media’s cooperation in policy implementation.
• The government is hinting that it will reintroduce permitting requirements for putting a property on the market – a controversial policy that was briefly tabled under the Roh Moo-hyun administration.
• Despite the government’s appeal, the media is pushing back against the policy proposal.

Implications: President Moon’s call for media cooperation betrays the administration’s suspicion that many progressive policies have failed because of negative coverage by an adversarial press. This implicit suggestion also justifies the incumbent administration’s reintroduction of a policy that was withdrawn by a previous government. But with or without a supportive media narrative, the log record of successive administrations failing to stabilize real estate prices will significantly shape the public’s outlook on the government’s capacity to curb the current economic realities.

Context: The proposed “selling permit system” requires prospective home sellers to first receive government approval before their properties could be listed on the market. During the Roh Moo-hyun administration, the government considered the policy but faced severe media backlash. Most mainstream newspapers argued that excessive government intervention in the market would further destabilize real estate prices. The criticism eventually led the government to indefinitely postpone the policy’s implementation.

Korea View was edited by Yong Kwon with the help of Gordon Henning, Soojin Hwang, Hyungim Jang, and Ingyeong Park.

Picture from user Chris Harber on Flickr

This briefing comes from Korea View, a weekly newsletter published by the Korea Economic Institute. Korea View aims to cover developments that reveal trends on the Korean Peninsula but receive little attention in the United States. If you would like to sign up, please find the online form here.

What Happened

• Recent polling showed that 63.3% of South Koreans preferred standardized tests receiving greater weight in college admissions than high school grades.
• President Moon announced plans to abolish elite high schools and increase the weight given to the annual College Scholastic Ability Test in college admissions process.
• After the notice, the demand for housing in Seoul’s affluent Gangnam district reportedly increased.

Implications: The government’s plan to deliver a more equitable college admissions process may clash with its parallel effort to stabilize the housing market in Seoul. Observers fear that the elimination of elite high schools would increase people’s demand for housing in traditionally high-performing public school districts where prestigious public high schools and private cram schools are concentrated. This concern stems from the observations that elite schools, many of which are located outside the prosperous districts in Seoul like Gangnam, had helped divert housing demand from key parts of the city. Detractors of the government’s policy also point out that emphasis on high school grades had actually pushed families away from competitive school districts. Critics believe that reversal of these educational policies will help exacerbate housing scarcity in Seoul – something that is central to the Moon administration’s struggle to reverse wealth inequality.

Context: The South Korean government has always struggled with the high-cost of education and wealth inequality. In the 1980s, the government prohibited private tutoring in response to criticism that more economically privileged families were leveraging their wealth to give their children an unfair advantage. However, it failed to control the black market of private tutors. In 2000, the ban was declared unconstitutional. In 2001, the government expanded the weight of high school grades in college admissions process to moderate the demand for private tutoring ahead of standardized tests. However, this has not mitigated the role of private education.

Korea View was edited by Yong Kwon with the help of Soojin Hwang, Hyoshin Kim, and Rachel Kirsch.

Photo from KBS 뷰 photostream on Wikimedia Commons.

By Jaeho Jeon

South Korea faces a household debt crisis. Household debt reached more than 1,257 trillion won ($1.1 trillion) in the second quarter of this year, up 125.7 trillion won and 11.1 percent from a year ago. This marks the highest level for household debt since the government began compiling related data in 2002. As a result, South Korea’s household debt stands at 163 percent of disposable income, or the amount of money that a household can actually spend after paying taxes or other welfare contributions. It’s also 26 percentage points higher than the OECD average of 137 percent.

Household debt in South Korea has been increasing mostly because of real estate. Apartment prices in Seoul rose about 3 percent from January to September this year. As apartment prices went up, more people rushed to borrow money to buy houses. Another driver of rising household debt has been increasing chonsei rental prices.

High levels of household debt also have significant implications for the wider Korean economy and have been widely dubbed the ‘detonator of the Korean economy.’ If household debt is increased, the disposable income of a household will be decreased. This can adversely affect domestic demand. If interest rates rise, borrowers’ debt-servicing burden will be escalated and consumption capability will be diminished. Most household debt is mortgage based, so if housing prices go down Korea could face its own version of the sub-prime crisis that hit the United States.

Many experts have suggested that the government should more strictly manage the levels of household debt. Even the IMF recently pointed out that level of household debt in Korea is high and the DTI, debt to income, cap of 60 percent should gradually be tightened toward a range 30 to 50 percent.

The IMF also suggested last August that the DTI cap should be extended to apply to other types of household debt including so-called group loans which are taken by a group of prospective apartment buyers and guaranteed by developers and public credit guarantee corporations. The IMF believes that these measures should reduce financial risks and also help consumption and growth by reducing household debt.

The Korean government has implemented a set of policies aimed at curbing rising household debt. But the latest measure did not include anything regarding DTI. Why did the government not implement strong measures like tightening the DTI cap? If we look at the statistics, we can understand the concerns of the government.

In the first half of this year, construction investment in South Korea has grown by 10.3 percent compared to the same period last year to 104 trillion won. In contrast, when compared to the first half Korea’s exports fell 10 percent in the first half. Private consumption, on the other hand, only increased by 2.8 percent in the first half.

Amid sluggish exports, the Korean economy is increasingly dependent on the construction sector for growth. GDP growth recorded 2.8 percent increase in the first quarter from the same period in the previous year and 3.3 percent increase in the second quarter.

But these figures drop to 1.6 percent each, when construction investments are excluded. Construction investment contributed to 51.5 percent of the Korean economic growth achieved in the second quarter. In contrast, they contributed to only 5.3 percent of economic growth from 2000 to 2014 on average.

Taking into account the circumstance that the Korean economy heavily relies on construction and the real estate market, the government will not likely tighten DTI as part of efforts to tackle the soaring household debt in the foreseeable future. Tightening DTI might result in a real estate market slump and failure to achieve the government’s goal for economic growth. Especially considering the South Korean presidential election next year, it is likely that the government would be reluctant to take significant measures which could reduce economic growth.

Jaeho Jeon is a reporter at ChosunBiz and a visiting fellow at the Korea Economic Institute of America. The views expressed here are the author’s alone.

Image from Francisco Anzola’s photostream on flickr Creative Commons.