Real Estate Through Young Eyes ①: It’s Time to Address the Real Estate Debate

For young people, real estate is something of a love-hate relationship. When they see homes priced at billions of won, they naturally feel a sense of relative deprivation, yet they also view property as a reliable means of moving up the social ladder. However, as seen in the fact that housing prices in Seoul have risen by more than 15% on average since the launch of the Moon Jae-in administration, it is becoming increasingly difficult for young people to access real estate. As a result, although most young people understand that housing prices are determined by market supply and demand, they still hope the government will artificially bring prices down.

But artificially lowering housing prices is extremely difficult. Setting aside the much-discussed market-based analyses, I would like to discuss why a fall in housing prices is difficult from the perspective of young people.

The first reason is the failure of “the politicization of people in their 20s.” Those currently in their 50s, 60s, and older generations share the memory of industrialization, while those in their 30s and 40s share the memory of democratization, and these shared experiences have given them the characteristics of organized political forces. By contrast, as can be seen from the intense gender conflict even within the current generation in their 20s, they have not formed a unified force capable of exerting meaningful influence through voting.

Moreover, even if they had become a political force, as of 2017, people in their 20s accounted for only about 13% of the total population. Considering that those in their 30s make up nearly 15%, those in their 40s and 50s each account for more than 16%, and those aged 60 and over account for nearly 20% (KOSIS), it is nearly impossible for people in their 20s to win a voting contest against all other generations. Even if people in their 20s and 30s were grouped together as a single interest group, given that about 90% of homeowners are over the age of 40 (“The Effect of Generational Gaps in Housing Asset Ownership on Consumption,” Bank of Korea), it would still be impossible to defeat those in their 40s and older at the ballot box.

As is widely known, “winning elections” is politicians’ greatest concern. Therefore, it is self-evident that politicians will not devote themselves to lowering or even stabilizing housing prices out of concern for people in their 20s, who have not become a political force and, even if they did, cannot help them win elections.

The second reason is “concern over a domestic economic slowdown resulting from falling housing prices.” According to Statistics Korea’s “2019 Survey of Household Finances and Living Conditions,” the average assets per household in South Korea stood at KRW 431.91 million, of which real assets accounted for about 75%, or roughly KRW 326.21 million. In other words, for most households in Korea, the majority of their assets are tied up in real estate.

Therefore, if the government were to artificially push housing prices down, the assets of most households in Korea would decline sharply, and a severe slump in domestic demand would be expected as a result. Furthermore, considering that Korea ranks first in the OECD in elderly poverty, it is reasonable to expect older people to be even more sensitive to declines in asset prices and to respond more sharply.

What is more, given that of the 2.0% growth rate in 2019, government contribution accounted for 1.5 percentage points, or 75%, it can be said that domestic demand in Korea has already entered a downward trend. If, on top of that, real estate prices were pushed down, inducing a net decline in the assets of the majority of the population, while also shrinking the construction industry, which accounts for about 10% of GDP, the pace of economic downturn would accelerate beyond control.

Thus, from both a political and an economic perspective, it is difficult to foresee housing price stabilization. However, as of 2018, Korea became the first country in the world to enter the 0-point-something fertility rate range, and if the younger generation, who will bear responsibility for the country’s future, continue to forgo marriage and childbirth, it is obvious that the nation will face a crisis serious enough to call its very survival into question. For that reason, we must begin a social dialogue on real estate.

A social dialogue on real estate can proceed in many different directions. But because stabilizing real estate prices would inevitably cause a decline in the asset values of those in their 40s and older, the core issue becomes this: can the older generation accept a decline in the value of their assets for the sake of future generations, and if so, how should they be compensated?

Such a social discourse would require a great deal of time and money, and because it would take on the form of a mechanical redistribution of wealth, it could also provoke further philosophical and moral controversy. Therefore, it is necessary to resolve this situation in other ways. I will discuss those methods in a future Op-Ed.

That said, even taking the problems mentioned above into account, a social discourse on real estate must be held. To help the younger generation who will carry our future, and indeed to continue building our history, a social dialogue on real estate is essential, and it must begin without delay.

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Original title: 청년이 본 부동산 ①: 이제는 부동산 담론을 다뤄야 할 때

Author: Jeong-hwan Jo

Date: 2020-01-29

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=free_opinion&pn=16&idx=22329