From the beginning of recent years, the real estate market has been one of the contentious issues in South Korea and among the young generation dreaming of their first homes. The average apartment price in Seoul exceeds about $1 million- starting from affordable to not very affordable. Despite various attempts by the South Korean government to rectify this through policy aimed at redistributive wealth in property, such policies have appeared to backfire and created a situation in which the rich benefit even more. Considering the causes of such a counterintuitive scenario requires consideration from both an economic and cultural vantage known as the “lunchbox theory,” emanating from the historical perspective of authoritarian governance which spawned modern South Korea
For an understanding of South Korea’s housing policies, one must go back to the dictatorship era-1960s and 1970s-when the then-government used to agonize with a shortage of rice. Though democratic in nature nominally, there were strict controls in every respect, including consumption of rice by the people of South Korea under the then-authoritarian government. The schools became a battlefield for these policies, where teachers searched students’ lunchboxes to make sure rice meals had at least 30 percent of other grains, such as barley. The lesson that was imprinted on a generation that grew up in this period was crystal clear: “If I have less, you must have less.”This kind of thinking produced a culture of equality only through shared sacrifice and not through the solving of problems. The government tried to control consumption by influencing behavior at an individual level, rather than attempting to produce more rice for consumption. For example, consumers of pure white rice were shamed as if this was a vice when, in fact, everyone wanted pure white rice. This kind of attitude lingers on in the minds of many of those former students who are now assuming influential positions as policymakers and property owners. This is the necessary historical context that helps make sense of the construction that explains why the current housing policy in South Korea is more punitive in nature in their regulation, versus practically economic.
The South Korean government has implemented several policies, trying to regulate high-flying property prices. Taxes on multi-property owners were raised and strict regulations on the owners of more than one home were imposed. That would hopefully make it less profitable to hold multiple properties; hence, investors sell. It increases supply in the market and gives more chances to ordinary citizens. To date, this has not had the desired impact. Rather than having a flood of properties come back onto the market, apartment prices have kept on appreciating. Indeed, as the head of tax and customs for South Korea’s Ministry of Economy and Finance was forced to admit in early 2021, just how much actual impact these measures would have remained uncertain. Many of these apartments never reached the market in practice, and even had they done so, it would have been impossible for young buyers to purchase them because of restrictive mortgage lending policies. Instead of attacking the root causes of the shortage of housing supply-new apartment construction and a lack of land availability-policies focused on penalizing existing property owners. Most of the time, these so-called investors are ordinary retirees relying on rentals in a country where the social security system is underdeveloped. They are middle-class, not wealthy speculators; they consider real estate their final backup line for financial security. Taking these away through heavy taxation risks not only their stability but also may have an effect on the chain reaction in the rentals market.
The failure of these housing policies is symbolic of what the “lunchbox theory” suggests: the problem lies not in economic miscalculation but in the emotional nature of the policies themselves. Instead of crafting solutions based on data and market analyses, the policies have followed the urge to punish those perceived as having more. The populist tendency is thus reminiscent of populist movements elsewhere around the world, where policy decisions have more to do with meting out punishment than with any notion of growth. They are based on the same principle as in the mentality that prevailed with the shortage of rice: shame and punish those who have what others cannot. The government did not say how many homes they expected to come on line with the measures, or how they thought prices would change because of them. Once you remove the transparency of the latter, you realize the policy had more to do with a message rather than specified economic goals. This means that, in practice, only cash-rich buyers can make it through regulatory hurdles that shut out people dependent on loans. Rather than distribute the opportunities in real estate more equitably, policies have actually had the opposite effect of inadvertently delivering more asset wealth to the top 1% and 0.1% of earners.
Unless policymakers really want to address the high cost of housing in South Korea, policies should shift from punishment directed at individual investors to the structural problems in the market. This could be counterbalanced by increasing supply through new construction projects or by incentivizing development outside highly concentrated urban areas, thus easing demand and reducing the pressure on the capital’s housing market. It would also make more opportunities for young first-time buyers if some of the lending restrictions were loosened so they could buy without relying on the savings of a wealthy family member. The failure of the present policies underlines the bigger lesson: no emotional reaction or purely punitive measure can solve economic problems. They have to be subjected to sufficient analysis, full transparency, and a willingness to tackle the real causes behind imbalances in demand and supply. South Korea’s experience shows that policies born out of rancor and not practicality can be expected to fail-and, in some cases, could make the problem even worse.
Conclusion
Skidding house prices in South Korea and the welter of government efforts to stem the process are testimony to how the nation’s policymakers are still led, willy-nilly, by the historical mindsets of their people. Whether there is a common thread running through all these policies, it is revealed by what is called the “lunchbox theory”-that is, enforced equality via restriction rather than any proactive attempt at solving economic problems. These policies have only made that goal more elusive for young South Koreans who dream of owning a home. Moving forward, the country has to adopt a more pragmatic and forward-looking approach if it ever is to achieve an equitable and sustainable housing market.
