Housing Shortage: Start by Reviewing Excessive Regulations

With the recent lifting of Land Transaction Permit Zones, attention is focused on whether this will lead to a policy shift toward normalizing the real estate market. The Land Transaction Permit System prohibits transactions except for actual owner-occupancy purposes and requires approval from the head of a local government when trading housing or land above a certain size. This regulation has had significant side effects, making transactions difficult for both end-users and investors.

The government has enforced strong regulations in the name of stabilizing the real estate market. Countless measures have been introduced, including the Land Transaction Permit System, lending restrictions, the price ceiling on pre-sale apartments, and the three rental laws, but these measures have only produced the side effect of distorting the flow of the real estate market. In particular, the Land Transaction Permit System, which fundamentally restricts transactions, prevents both those who want to buy and those who want to sell from accessing the market. As the market froze, transaction volume declined, producing results far from real estate market stability.

At a time when demand for newly built housing is rising, the supply drought has reached a serious level. As housing across the country is aging rapidly, the volume of apartment move-ins is falling sharply. Steady supply is essential for price stability in the real estate market, but in Korea, heavy regulations have instead blocked supply. Regulations on reconstruction and redevelopment are especially severe. Safety inspection standards are stringent, and the excess profits recapture system has created an environment in which private construction firms and associations find it difficult to pursue projects.

Aging apartments in need of reconstruction are being left unattended without improvement, and the situation in which new housing supply is not proceeding smoothly in major cities such as Seoul continues. If supply is insufficient, prices inevitably rise in the long term, making it even harder for end-users to buy homes of their own. We must not overlook that the key to market stability is not regulation but natural market stabilization through sufficient supply.

The most efficient way for the real estate market to function is for supply and demand to adjust naturally. If demand is high, supply increases, and if demand falls, prices naturally adjust in response. But when the government intervenes artificially, listings are held back, supply declines, and the normal flow of the market is obstructed. As the experience of the past several years has shown, stronger regulations cannot preserve market price stability over the long term. Rather, transactions themselves contract, housing supply falls, and upward pressure on prices increases over time.

Now is the time to change the direction of policy. If excessive intervention continues on the grounds of short-term market volatility, future generations will ultimately bear a heavier burden. In major cities such as Seoul in particular, demand cannot be suppressed indefinitely through artificial regulation, and it must be remembered that resolving the long-term problem of supply shortages is the more important task.

The National Assembly should swiftly pass the pending “Special Act on Reconstruction and Redevelopment” and the “Act Abolishing the Reconstruction Excess Profit Recapture System” so that improvement projects and new housing supply can proceed smoothly. If regulations that block supply continue, the transaction cliff and supply drought will persist, ultimately leading to higher housing prices. There is no more time to hesitate. Effective legislation is urgently needed to normalize the market.

Sung-no Choi, President of the Center for Free Enterprise (CFE)

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Original title: 주택 공급 부족, 과도한 규제부터 점검하자

Author: Sung-no Choi

Date: 2025-02-27

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=press&idx=27381