(EDITORIAL from the JoongAng Daily on Sept. 17) - Havoc on the housing market

To curb a steep rise in lump-sum jeonse housing costs, the Seoul city government
recently introduced countermeasures. The plan is to raise the floor area ratio,
or how much floor space can be built on a plot of land of a certain size, by 20
percent. But that change will not have an immediate impact, because its effects
will appear two years from now at the earliest.
Market watchers say both the city government and the central government are
responsible for the steep hike in jeonse prices.
Jeonse costs in Seoul and other metropolitan areas have risen by tens of millions
of won (tens of thousands of dollars) on average due in part to a supply shortage
caused by government-initiated town developments and housing reconstruction
projects.
The government announcements forced residents living in designated redevelopment
areas to search for new homes. As a result, jeonse prices in neighboring areas
shot up.
The governments overlooked the important axiom that it takes at least two to
three years to supply new housing and instead focused on expanding redevelopment
and new housing projects.
Housing supply can???t be increased immediately, and there is no magic bullet to
stabilize soaring rental prices. The government has two options to tame jeonse
inflation: First, reschedule the timing of demolition or reconstruction to ease
housing shortages, and second, revise related housing regulations and recognize
small and midsized ???officetels??? as residences by allowing them to have floor
heating systems - which is currently prohibited.
The increases in housing supply set in motion will bear fruit in the next two or
three years, according to central government plans. But the Seoul city
government???s recent announcement of new redevelopment projects has intensified
the already serious housing shortage.
Meanwhile, the central government is set to provide 320,000 public apartments in
the metropolitan area by 2012.
Add the Seoul city government???s plans to build over 200,000 small and midsized
apartments to that, and oversupply might trigger a significant plunge in domestic
housing prices in the next two to three years. The city government???s measures
to increase housing capacity could also provoke reckless development by
construction companies.
Both the central government and the Seoul city government need to coordinate
their policies on housing supply. The focus on just easing housing prices is
problematic, and the governments need to look ahead to what will happen within
the next two to three years if they go ahead with their plans.
(END)