Housing affordability and the role of real estate in personal wealth are constant, emotionally charged topics in South Korea. This debate goes viral because it touches on fundamental economic principles and government policy, directly impacting the financial futures of many Koreans amidst fluctuating market conditions.
Korea's housing market is always a hot topic, especially with skyrocketing prices in major cities like Seoul. But beyond the price tags, there's a fundamental debate raging: Is a house primarily a consumer good – a place to live – or an investment asset, a way to build wealth? This viral discussion highlights the complex relationship Koreans have with their homes.
On one hand, it seems obvious: a house provides shelter, a basic human need. Like clothes and food, it's something you 'consume.' Over time, homes wear down and require maintenance, making them a 'durable consumer good.' When prices for such an essential item rise far beyond inflation or average wages, it signals a problem with supply and demand, making it harder for ordinary people to afford a place to live.
However, the reality in Korea, particularly in areas like Seoul's affluent Gangnam district, paints a different picture. Unlike a car that rapidly depreciates, houses often hold or even increase in value. You can sell it, and often for a significant profit. This makes a house function very much like an investment asset. In fact, many argue that for decades, the investment aspect has overshadowed its role as a consumer good. Some even compare its appreciation to gold, which has seen massive gains, or the stock market, with Gangnam apartment prices reportedly rising fivefold in the last two decades, mirroring stock index growth.
This dual nature creates a policy dilemma. If houses are primarily investment vehicles, especially owner-occupied apartments, then perhaps government efforts should focus on boosting the quality and quantity of rental housing – which serves the 'consumer good' function – rather than trying to control the prices of investment-grade properties. The author questions why governments often aim to boost stock prices (also an investment) but curb house prices, acknowledging that while excessive housing costs harm citizens, a house is far more than just a simple consumer good.
🇰🇷 KOREAN REACTIONS 10
Statistically, houses are classified as investment goods. They're like machines that create a 'housing service.' Viewing them as consumer goods is actually a minority opinion, lol.
You shouldn't just look at the house itself, but the land share (daejijibun). The building is a consumer good, but the land is definitely an investment good. The real estate investment value comes from the land, which is why location is so important!
For apartments, you're restricted by the floor area ratio (yongjeongnyul). There's also exclusive use area and common area. I looked it up, and for apartments, the exclusive use area is about 70-80%. Floor area ratio is usually 100-300%. If the exclusive use area is 70% and the floor area ratio is 200%, then the land share is about 7/20ths of the exclusive use area. So if the exclusive use area is 84 square meters, the land share is around 29.4 square meters.
This whole mess (high house prices) is happening because they're trying to control house prices without increasing the quality and quantity of rental housing. It would cost a huge amount of tax money, but they lack the will or ability to spend it. Unless Park Chung-hee comes back to life, this won't be solved.
People buy apartments as investment goods, so what's the point of improving rental apartments (as consumer goods)?
The point is to solve the basic 'housing' problem as a consumer good. That way, people who need housing but have less investment intent would reduce their demand for apartments. Then, apartments as investment goods would also find appropriate prices.
You need to distinguish between the house (structure) and the land. The house itself loses value as a consumer good over time, but the land has value as an investment good.
A house is both an asset and a consumer good. While an asset isn't always an investment asset, real estate: 1. Can generate income through rent if you don't live in it. 2. Has investment value from price appreciation. 3. Even if you live in it, you save on rent (imputed rent), so it can be seen as an investment asset. However, because it's scarce and essential, we need to curb investment psychology if people are only chasing capital gains.
Based on the title, the truth is 'both!'
Buildings, excluding land, are depreciating consumer goods. If reconstruction and redevelopment become almost impossible in the future, it seems right that prices will eventually go down.