If you feast off the hopes of the young with $1-million-dollar starter homes, then expect the burden of suppressing their rage.
President Moon Jae-in’s approval rating fell to an all-time low to 33 percent today after a solid start to his administration when he ushered in a new era for democracy in 2017. In particular, young men in their 20s and 30s are turning away from the liberal party as they feel betrayed by a housing market dotted only by listings in the $1 million to $2 million range in Seoul.
Securing a home has traditionally been a foundational caveat to seeking a hand in marriage, so the price of real estate literally affects one’s future for love, sex, family, companionship and social standing. With the first stepping stone out of reach, all the others are too. Prices that have inflated to nose-bleed levels have sucked out hope from the young. But they’ve padded the retirement portfolios of the property-rich older generation quite nicely.
Backlash to this pain has come in the form of sexism, xenophobia, materialism, bullying, perversion and of course punishment at the ballot box. Korea’s politicians should be more grateful for the compliant sheep they’re herding. Despite all of the bluster that street demonstrations garner, society as a whole has been scared shitless into following the path dictated to them. And yet, even with the path narrowing and narrowing to a tightrope, the sheep still gather to take their gamble that they may be one of the few to make it across, never challenging the system.
Those who’ve fallen to the ground transform into bitter crabs who team up to pull down any other crab who’s regained some hope to get back up and escape the pit of misery they’ve fallen into. What results is a very compliant society on the surface, but churning with intense turmoil and resentment that’s liable to explode unexpectedly. With the first taste of hope’s betrayal getting younger and younger, it’s harder to play whack-a-mole against the sheep gone amuck. Everyone says they’re complaining about housing prices, but really it’s just their safe word for get me out of this rat race.
How to Solve the Real Estate Problem
Korea’s obsession with worshipping a single route to success has choked real estate. Instead of creating a free market, Korean society has become too comfortable with changing the rules of the game until it finally lets them win and makes their enemies lose. Then when their enemies gain power, they change the rules to favor themselves and get revenge on the previous regime. After a few cycles, the market is left a mess. Yet this chaos is hidden under the “stability” of a singular pathway to legitimate homeownership: the almighty high-rise apartment.
Diversify legitimate home ownership options
Life in a tasteless high-rise always puzzles foreigners. But the identical concrete units create stability with the government in zoning, trust in putting down hundreds of thousands of dollars in a pre-construction deposit, safe playground space for children to stretch out, preferential tax rates, neighbors of a similar social class, amenities like gyms, ample parking and negotiating muscle when it comes to demanding a lucrative rebuild into a luxury high-rise when complexes reach about 30 to 40 years of age.
Therefore, you live there comfortably during your family years and when you retire, your apartment gets a luxury refresh. With the price boost, you can sell your home to fund your golden years. This only works with the high-rise apartment, preferably in Seoul. Not for condos, villas, vacation homes, officetels or any other types of housing structures.
Public policy favors this outcome. It helps price rises that double every few years. Meanwhile, policies suppress prices of other housing types so that they rise very modestly if at all. So everyone clamors into high rise apartments in Seoul, which creates a self-fulfilling prophecy of sky high prices.
Well, can you buy, not rent, an affordable housing unit in Seoul? Even in the heart of Seoul? The answer is yes. Villas, which are usually 3 to 5 story structures, sometimes with shaky construction, are extremely affordable. You still can buy a two bedroom for less than $150,000 in Seoul. Yes, you can have a starter home if you adjust your expectations.
“But my kid will get bullied at school. No one will play with him. All the other moms will look down on me for living in a villa! And there’s really not much room to grow in this dwelling!” Well, I’m sure your ancestors who lived in houses with straw roofs not even over 70 years ago started with much less. “It won’t double in price next year!” In my day, it would be reasonable to expect real estate to return about 4 percent a year or 8 percent in years when you’d be really happy.
On the one hand, it’s criminal how high prices have skyrocketed. But on the other hand, we also have to take responsibility for buying into the system that accepts the suffering of others as long as we’re okay. And if we’re the ones hurting, we immediately blame politicians who have no training to solve our problems with powers they never should’ve had in the first place. Korean society has become too comfortable with denying the good life as long as it’s not them.
Should everyone in Korea who wants a high-rise apartment be able to buy one at a low price? I’m not talking about affordable housing. People are mad that they can’t buy a 3 to 4 bedroom apartment in a prime global capital city that’s either a luxury apartment now, or on path to become one once it’s torn down. Would you expect people to blame the president of the United States if they couldn’t afford a 3 to 4 bedroom apartment in Manhattan?
Instead, we should make alternative real estate classes more attractive investment opportunities by relaxing regulations that allow quality to improve, taxes to go down and price appreciation to go up.
Create real investment opportunities other than real estate
It’s laughable to think Korean politicians can fight the global money printing machine that has been inflating property assets in Korea. And it’s pathetic to see the public think the politicians aren’t fulling using their powers to ‘control’ property prices. As of now, this administration has used its power to tax people into the poor house to give up their real estate holdings in an attempt to lower prices. It’s only made prices go up.
Unless they take the economy off the grid like North Korea, they’ll have to find another way to prevent money from flowing into the property market. And that’s the key. To stop prices from rising, you have to stop money from flowing into the market, not taxing or punishing existing homeowners.
As an asset class, property has been popular because it’s a hard asset that has built-in trust. Korea is land of many people burned by scams so it’s no wonder that people flock to an investment with transparency, predictability and demonstrated value. If the government would not try to destroy this investment class as well and instead focus on cultivating policies that prevent fraudsters from destroying other investment classes, perhaps there would be less money pooling into real estate.
If there’s anything we know for certain, money will sniff out opportunity and be waiting for the door to open if you build a solid investment vehicle. You don’t have to cajole, market or convince capital to go into a good investment. Instead, we have politicians who are punitive by nature – wanting to destroy, punish or get even with their enemies rather than create opportunities for the greater good.
Why would this be hard to implement in Korea? Because this generation of kkondae politicians hates to see others succeed. No matter how much wealth or power they may have, they hate it when others do too well. And until the public gets their fear of becoming the black sheep out of its system, the cycle will continue again and again.