South Korea is debating a piece of housing legislation right now, that would end real estate speculation and predatory landlords. It is called the “One family, one house” bill, and would expand home ownership dramatically. Korea is currently a nation of renters, because a small portion of the population owns nearly all housing.
What this does is prevents holding empty buildings to drive up prices for speculation. Unoccupied housing will be taxed at a rate of 10% of market value pro-rated monthly.
Anyone offering rentals of homes will have to charge a rate less than 10% below comparable listings with a mortgage. In essence, it will make it impossible to buy a house and then plant a renter in there to pay your mortgage for you while you build equity in exchange for nothing.
New apartment complexes are all rent-to-own with the developer only owning it until 15-20 years have passed and then the rental unit control passes to the owners of the units. Renters who move still retain equity in the units, and can arrange a swap with renters in other areas to assist in moving without major loss of equity.
Americans dump upwards of 30% of their income into housing. And that’s not even close to what they should be spending if we were only paying for building materials and construction labor. This would put thousands of dollars of income back into ordinary people’s disposable income.
The first American politician to run on this platform is headed to a landslide victory.
Real step to socialism where the government controls housing and rents. soon all food is federal price controlled, then Jobs and wages are federal controlled. Yep, great idea, right? Capitalism dies. Korea will soon be annexed to North Korea because THEY want to be like them.
When I was in Korea in the early 60’s, you could rent a house for a set fee payable monthly. If you stayed for at least a year and then moved, you received 100% of your rent back from the landlord and the interest he’d earned by investing your rentals was considered adequate “profit.” If his investments failed, that was just too bad.
South Korea hit an all time high of home ownership of 58% last year.
Renters are around 1/3 of the population.
The speculation is driven by their monetary policy which has made credit cheaply available during a time where interest rates should be increasing.
Their officials freely acknowledge this, but they won’t constrain their policy for housing effects alone. In their minds, cheap credit is necessary to keep the economy going.
“There’s not much the central bank can do at this stage,” said Kim Jin-myoung, an economist at Hanwha Investment & Securities Co. in Seoul. “You can’t raise rates for the sole purpose of reining in property prices when the economy is still in a slump from the coronavirus.”
So they’ll put the markets more in the hands of corporate renters, rather than individuals at the lower end.
Corporate renters already had an interest to keep people occupying their units. With higher taxes and more regulations, compliance costs put things even more squarely in their court.
But if what you wanted was prices to go down; that’s not happening. If you wanted increased home ownership from this, equally, not happening.
BTW, they were already taxing people for owning multiple housing units in 2018, and put restrictions in place for taking out additional mortgages in “speculation zones”. Prices still went up.
We know what the effects of rent control are.
It translates into a cap on unit construction, and a wealth transfer from future renters to those who first had the rent control put into place.
We’ve had about 50 years of this in San Francisco.
It promotes empty-nesting (old people holding onto family-sized dwelling they no longer need), and young couples being forced even more into small studio apartments. Which will be even more expensive than if the rent control units weren’t there.
So existing rental units get a boone, and little to no one is incentivezed to build new units… whose going to build them to even try to keep up with population growth?
Oh right, the Government.
BTW Where is most of the speculation happening again?
“South Korea’s overheating property market has been largely confined to Seoul and its surrounding areas, with prices broadly stable in other large cities and declining in some smaller regions over the past three years.”
So a nation-wide intrusion into housing, because of what’s mostly happening in a few popular areas in Seoul?
Yeah, that actually does sound like America. Most of our speculation in 2008 was concentrated in a handful of areas in New York, LA, and Florida. It still is.
Don’t want that speculation happening in your back yard? Not even a little bit? Then do what the 4th largest city in America does.
Make land use more mixed, allow taller constructions.
Houston, Texas saw barely any impact from the 2008 crisis. Because the city built housing at a rate that kept up with population growth.
That’s the key. Houston does better than those coastal cities in terms of home ownership and avoids the speculation wars, because of these two things.
Could Seoul do the same thing as Houstoun? I’m pretty sure it can as there’s an even better example of this right across sea in Tokyo. The world largest metropolitan area with the same mountainous terrain constraints as Seoul.
Yet, they have had stable housing prices for 20 years. In fact, it’s gone slightly down. Japan’s overall home ownership rate is in the top 20 in the world at 80.5%.
What did they do? The same thing as Houston; mixed land use, less caps on height. Resulting in:
Japan is just all around all-star here. To the Koreans credit, they are talking about implementing something similar.
One of the problems in Houston is that it’s the largest city in the country with NO zoning regulations, so you could buy an acre of land and build a mansion on it only to have a next-door neighbor use HIS property as a trailer park.
Watch the video Dave, they address this very topic. There’s no rule in economics that cities always have to grow to be dense, they can certainly sprawl out if that fits the needs and is what people prefer.
Houstoun provides a natural example of how cities grow uncoerced.
Opposite. The best way to make money is to build a new unit, instead of creating predatory scarcity.
Yes, specifically due to all of their evil pro-homestead instead of pro-landlord laws.
A significant portion is being done by Chinese prospectors who are delivering literally nothing of value to anyone in Korea. Remind me why Koreans should pay higher rents so random wealthy Chinese people can become even richer in exchange for nothing that benefits the median Korean?
I’m fine with that. That fits just fine with making laws that support homesteads over landlords and property management companies.
Again, give me one good reason renters shouldn’t gain equity in their units?
I gave you San Francisco. It translated into less units being built, and older folks holding onto units too large for their needs.
Intentions don’t equal results. That’s the entire problem with interventions like this.
Why build apartments, when you can easily get more money building more corporate offices? That’s another effect.
So is landlords letting their units fall into dilapidation because of rent-control. If they can’t gather the money, they pull back on capital improvements.
If that’s a problem (and I don’t deny it; China is essentially exporting its own mal-investment effects), you can limit it simply by doing what Australia did.
That would be a symmetrical response to the problem. Pretending this was a nation-wide problem of landlords being greedy isn’t.
They are no more greedy there than anywhere else; given the right conditions they would adjust the same way Japan has.
We know this because again; the problem is nigh entirely in a few urban areas around and in Seoul where land use and height are restricted.
This isn’t true everywhere in Korea, or even most of it. Overall, they have a housing surplus and in most of their cities housing prices have remained stable.
You’re encouraging less units to be built. You’re spuring on the supply problem by encouraging land owners to build things other than apartments. Light or even heavy industrial buildings will have more returns, with less restrictions.
People will be stuck waiting for the Government to build their own housing project.
Again, Japan solved this while having a more crowded market. 20 years of prices slightly falling in the largest metropolitan area on the planet, and one of the highest home-ownership rates in the world.
Not all nations can always be compared to each other on what is right and wrong economically. Generally speaking socialism is bad as a rule. It was the economic system of Nazis and Communists after all which is obviously why Alaska Slim is coming to their defense. That said that though, South Korea is a tiny Nation with a different culture and that can mean a different solution than what is good for America. Obviously AOC is a dolt and an imbecile thinking that it can work in America. In fact AOC is a dolt and an imbecile period. But once in awhile a quasi socialist program works in a tiny country that would not work in a huge country like America .
On a related note if you guys want to hear something really crazy, you may have heard Rush Limbaugh talk about what Obama almost implemented but Trump squasht thank God. It was this idea that you would carve out a piece of real estate in the middle of a high income housing area like Beverly Hills or something like that, and plop down government control low rent houses with the Communist goal update everything equal. That is so wrong in so many ways that I cannot that I cannot begin to count
Again, they turn over to the renter in 20 years. Buildings don’t need a terrible amount of maintenance in the first 20 years. And from what I’ve seen in America, most apartment complexes are essentially built, and then mostly left to fall apart until it’s become near-slum levels, and their occupancy drops below 80%. Then they totally renovate a wing at a time until the thing is fixed again.
Lol, no. Why would you build numerous industrial buildings in Seoul, if there aren’t enough residences? Your business rates are directly tied to the local population.
If you’re instead saying industrial real estate will grow faster - I’m fine with that. I don’t care if the building incentive results in more houses, rent-to-own apartments and even more offices and manufacturing than the former two. We want to encourage building things and using them. Not tearing things down and holding them vacant to create artificial scarcity.
You understand how worthless and downright harmful artificial scarcity is to literally everyone other than the people speculating, correct?
What value does this bring to anyone, and why would anyone support it? Give me a solid reason. Feel free to quote Von Mises or anyone - I want to see even an attempt at justifying artificial housing scarcity.
This doesn’t address the supply side of this problem.
Which is why this is a problem. You get rampant speculation like this when barriers to enter the development space are high.
None of these measures will increase the likelihood that developers will want to build affordable housing. It’s putting on more restrictions, while offering no new incentives, so less will choose to do it.
And if less are choosing to do it, if construction continues to fail to match population growth in these highly urban areas, prices will equally continue to grow. That’s just supply & demand at work.
S. Korea’s Government has been interceding in this market since 2003. It’s only measure for addressing supply has been to slowly build its own public housing. Which just further brings on the question why developers weren’t doing that on their own if it’s so lucrative.
But you’re not answering why the speculation exists.
There’s a bubble fueled by artificially cheap credit, restrictions on building new supply, and a foreign investor class trying to sneak their fortunes out of China where real estate is one of the few loopholes.
I’m seeing only a very weak address of one of those root causes (public housing). They’re doing nothing on the other two, and it’s for for the same reason; that cheap credit and foreign investment, even the speculative kind, keeps GDP up.
As that source I just gave you describes they do have an interest not seeing this bubble completely collapse; lest they go through a 90’s Japan-like recession.
Their current President has already introduced several head winds to the economy in his policies, and instigated a trade war with Japan. So superficial GDP growth still looks better than nothing.
Is it what they should be doing? Oh heck no; they should stop the cheap credit (which Mises and Hayek had a lot to say about), open up their housing markets to more development, and address why their SME’s have fallen into a hole where they’re glacially slow at innovating and moving up the value chain.
But the other part of the President’s plan does not do any of this. It’s rather to rely on cheaper labor in the North to increase their exports, and grand infrastructure projects interlinking them with the North, China and Russia.
The former might help them, that really depends on North Korea and how well S. Korean companies decide to trust them (and also: do we, the U.S., let them do this?), the latter just sounds like a hail Mary. More superficial growth to mask the lack of attention to fundamentals.