Praise premature as housing supply plans unclear

As of last Monday, apartment prices in Seoul rose 0.19 percent from the previous week, marking the third consecutive week of slowing gains. The upward momentum seen earlier in the year, following the government’s deregulation of land transaction permits in the Gangnam area in February, appears to have weakened since the Financial Services Commission announced tighter loan restrictions on June 27. President Lee Jae-myung praised the commission for its efforts, saying it had “done a great job.” On the surface, that might seem justified.

But a closer look shows it is too soon to feel reassured. According to the Seoul Real Estate Information Plaza, only 1,412 apartment transactions have been recorded this month, just 10 percent of June’s total of 11,344. While final figures may rise as data is updated, the current trend suggests that the lending restrictions have significantly cooled market activity. Still, major transactions continue in central Gangnam and in complexes awaiting redevelopment, showing that the slowdown in prices is likely temporary, not permanent.

History suggests that a drop in transaction volume does not always signal healthy market conditions. Under the Moon Jae-in administration, efforts focused heavily on suppressing demand, such as banning mortgage loans for homes priced over 1.5 billion won. This triggered a “balloon effect,” where demand spilled into surrounding areas, driving prices up unexpectedly. It revealed the limitations of regulation-heavy approaches aimed solely at controlling demand.

The real question now is whether there will be enough supply to meet persistent demand. Unfortunately, President Lee and his administration have outlined only vague goals on housing supply without offering any concrete road map. Even during his campaign, Lee failed to present a clear supply policy. Kim Yoon-deok, the nominee for Minister of Land, Infrastructure and Transport, has said he will relax restrictions on floor area ratios for redevelopment, promising to build more housing “where there is demand” while balancing public and private interests. But a detailed vision of how the government intends to meet public housing needs remains unclear.

The Moon administration made a critical mistake by assuming that any additional demand was speculative and should be curbed. It cracked down on urban redevelopment projects and instead promoted new towns and suburban developments. But much of the so-called “fake” demand turned out to be from younger buyers in their 20s and 30s, worried that housing would slip permanently out of reach.

The market has learned that demand-suppression policies have limits. Demand that is restrained for too long can surge back in unpredictable ways, depending on economic conditions. The June 27 loan restrictions may temporarily cool off Seoul’s overheated apartment market, but they are not a long-term solution. To maintain stability, the government must follow through with concrete supply plans that focus on the areas where demand is highest, as the minister nominee himself acknowledged. It is still too early to offer praise.