[Editorial] Little help to tenants

On Thursday, the administration announced a package of policies aimed at curbing the steep rise in home rent ― the third of its kind this year. But it is unlikely to produce its intended outcome, as it fails to address the core problem appropriately ― a chronic shortage in supply.

The shortage dates back to 2008 when the ruling Grand National Party committed itself, ahead of the upcoming parliamentary elections, to launching “new town projects,” in which rundown areas of Seoul would be bulldozed to build new residential districts. As the project went ahead, the number of demolished houses began to surpass that of building permits ― for instance, 43,844 permits were issued in Seoul last year and 58,683 houses were demolished.

The key points of the new rent policies are tax cuts for home renters and permission to owners of a single home to buy an additional one to register as landlords. These measures will undoubtedly increase the supply of houses for rent, but not much ahead of the fall moving season. Still worse, the exemption of a surtax imposed on expensive homes purchased for rent is denounced as a tax loophole for wealthy people.

Another problem is a decision by some commercial banks to stop providing households with loans under pressure from the financial authorities that are concerned about snowballing household debt. The decision has been made at a time when it is not unusual for key money to rise by 30 million won to 50 million won. Where are newlyweds and families with modest income supposed to borrow the money when banks refuse to lend to them? They will have to knock at the door of a non-banking financial institution for loans with higher interest rates.

Still, one praiseworthy act of the administration was its decision not to yield to a demand by politicians that a cap be placed on rent increases. It did so on the grounds that it went against the market principle of prices ― rent in this case ― being determined by supply and demand.

With the short-term policies not working properly to curb rent increases, the administration will do well to turn to a longer-term approach, including a change in housing policy designed to encourage the building of small homes for rent in urban centers, as favored by newlyweds, young office workers and college students.