Deregulation in the housing market, championed by Choi Kyung-hwan, deputy prime minister for economic affairs, appears to be awakening the apartment market from its long slumber. With sales activity starting to stir again, news reports say prices will be on the rise in the months ahead. Is the deputy prime minister trying to revive the “myth about apartments?”
The myth is ingrained in the minds of the older generations. In Korean society, the purchase of an apartment has been a goal of anyone desiring to move into the middle class.
Saving to buy an apartment was one of the surest ways to feel successful. To those in the older generations, few things were as reassuring as an apartment purchase. The book “Apartment Games” (written by Park Hae-cheon) explains what it meant.
On April 19, 1960, students rose up against a civilian dictatorship and the president went into exile in Hawaii. But it did not take long before Park Chung-hee took power in a coup. The pro-democracy fighters were flustered by the iron-fisted army general-turned president steadily consolidating his grip on power.
Still, this generation benefited from the military-backed dictatorship`s residential development of Yeouido, areas south of the Han River (Gangnam) and other places in Seoul. When the students became mid-level corporate employees, the dictatorial administration launched a project to build 5 million homes, building apartments in Gwacheon, Gaepo, Mok-dong and Sanggye-dong.
Riding on three lows (low oil prices, low interest rates and a low U.S. dollar), the prices of the apartments bought in Gangnam and other new residential districts tripled or quadrupled in a short period of time.
The generation born in the 1960s also benefited from apartment construction ― this time in new satellite towns near the capital, such as Bundang, Ilsan and Peongchon. When the Roh Tae-woo administration (1988-93) launched a project to build 2 million homes, they were given preferential terms to buy apartments, which continued to rise in value. As a result, many apartment owners joined the middle class.
As such, it may not be too much to call older Koreans the “apartment-enriched” generations. For them, apartments became a source of financial security later in life. Those with stable jobs could open special bank accounts, borrow money at preferential low interest rates and subscribe to new apartments at below-market prices. They could sell them after a certain period of time and save all or part of their profit for old age.
Many of them also honed financial skills through apartments. When they had seed money large enough to buy one apartment, they could borrow money, buy several apartments (whose prices were nearly certain to rise), rent them and receive substantial lump-sum key money from tenants. In a word, apartments provided them with capitalistic leverage.
At the time, apartments provided a good example of trickle-down effects in the economy. Apartments did not produce anything. Yet, they appreciated in value over time. The gains trickled down from high rates of growth generated by booming exports.
It was not only apartment purchasers that benefited from the apartment construction boom. The news media desperate for ad revenues and the administration with few welfare policies also gained much from the buildup.
But conditions changed for those who attended universities in the 1990s. The era in which most university graduates could own an apartment soon after they were employed or married ended with them. They were not as fortunate as the previous generations; only a handful of this generation who inherited wealth from their parents, or had no qualms about borrowing money, bought their own apartments. The great majority were deprived of opportunities to buy apartments on preferential terms.
The situation has become even bleaker for those who were in their 20s in the 2000s. There are few institutional incentives for those who are buying their homes for the first time. In addition, apartment prices have already risen so high that it is not likely that they will go up any further. They may sustain huge losses in the future if they borrow money and answer the government`s push to buy apartments.
The administration reminds people that apartment ownership has been a way to gain wealth, an apparent attempt to instill in society the older generation`s sentiment toward apartment purchases.
Apartment ownership`s connection to building wealth and yielding retirement money was established long ago. But it no longer serves those functions in Korea, where the population is graying fast and faced with the risk of shrinking.
It would be horrendous for those owning no apartment if the team of economic policymakers led by Deputy Prime Minister Choi should attempt to turn the nostalgia into a reality. Nostalgia is appealing when it remains nostalgia. Young and future generations cannot find any hope in apartment ownership. A policy of reviving an apartment boom would probably do much harm to their future.