A Market Stalled by Real Estate Regulations, A Vanishing Social Ladder

Regulation has abruptly cooled the housing market. On October 15, the government designated all of Seoul and 12 areas in Gyeonggi Province as “adjustment target zones” and “speculative overheating districts,” and further expanded land transaction permit requirements to include apartments and some multi-family housing in those areas. The stated intent was to curb overheating, but the outcome has been a sharp freeze in transactions and distorted market signals.

In the ten days following the measures, apartment transactions in Seoul plunged by about 79 percent compared to the previous ten days. When transactions are restricted, prices may appear stable on the surface. In reality, however, the market loses its reference point for determining what a fair price is. A market deprived of price discovery becomes highly volatile even in response to minor news, and the cost of that volatility ultimately falls on genuine end-users who need to buy homes.

Recent housing regulations amount to a near-complete blockade of market entry. Expanded permit requirements, tighter loan limits, and restrictions on home purchases in regulated areas tied to owner-occupancy obligations are operating simultaneously, subjecting even legitimate demand to screening. As time and cost barriers rise, more buyers wait on the sidelines, and shrinking transaction volumes create misleading indicators.

The deeper problem is regressivity. The stronger the regulations, the more access to homeownership depends on financial capacity. Young people and newly married couples who rely on leverage are pushed further away, while those with substantial cash reserves are able to move. Uniform restrictions of this kind disproportionately harm those who most need housing.

Under the current regulatory framework, the ladder to homeownership for genuine end-users is being pulled away. Frequent rule changes and prolonged review and approval processes delay decisions and restrict access to credit, sharply reducing the feasibility of home purchases for households with the same income.

The rental market is also affected. When home purchases are constrained, demand shifts to the jeonse and monthly rental markets, while regulatory uncertainty discourages rental supply. As tenant burdens rise, the legitimacy of housing policy itself comes into question. Any claim of “cooling overheating” must be accompanied by a credible path to rental market stability.

Housing policy should be guided by the principle of minimal intervention. Restrictions should be narrowly targeted—limited to specific areas, property types, and sizes where speculative signals are clearly identified—and applied for a fixed period. Their effectiveness should be evaluated using data, with automatic expiration once objectives are met. When rules change too frequently, no one can make long-term decisions.

Finance is an area where markets should judge and individuals should bear responsibility. Regardless of first-time buyer or homeownership status, consistent principles based on income and repayment capacity should apply. Free choice in refinancing, switching loans, and repayment methods should be ensured. Even short-term speculative trading is better addressed not through separate prohibitions, but by accurately pricing costs and risks so that returns and losses are determined by the market. Under such conditions, markets can reach balance without overheating.

Information enhances predictability. From the outset, policymakers should clearly communicate when rules begin and end, and ensure that regulations automatically lapse once stated criteria are met. Rules should not be changed frequently, and neighborhood-level developments should be disclosed regularly in an accessible manner so that citizens can make rational decisions on their own.

The purpose of housing policy is to expand pathways for citizens to make informed and rational choices. Temporary freezes imposed through heavy-handed controls do not last. With minimal intervention, efficient financial intermediation, and predictable rules, markets can restore balance on their own—and the ladder to homeownership can be rebuilt for young people and the housing-insecure. What is needed now is not constant intervention, but stable standards and credible commitments.

Seung-no Choi
President, The Center for Free Enterprise

Korean version: https://www.cfe.org/bbs/bbsDetail.php?cid=press&pn=1&idx=28239