Squid Game and Parasite tap into public anger over unaffordable housing

Asia-Pacific region, price rises in Seoul, years-long effort, presidential election, Parasite, best picture, Squid Game

Since the Covid-19 pandemic erupted, house prices the world over have gone through the roof. In the fourth quarter of 2019, just before the virus began to spread like wildfire, only one major city – Frankfurt – registered price growth in its prime residential market of more than 10 per cent on an annualised basis.

Fast forward to the third quarter of this year, and just over a third of the 46 markets tracked by Knight Frank experienced price gains above 10 per cent, half of them in the Asia-Pacific region. While the composition of the group of cities with the fastest growth in home values has changed over the course of the pandemic, one market has consistently remained in the top five: Seoul.

Last quarter, prime residential prices in South Korea’s capital rose a staggering 22.6 per cent year on year, the second-fastest rate after Miami, a city which has benefited hugely from the shift to suburban and coastal locations that has been a key driver of the post-pandemic housing boom.

In a sign of the persistence of the price rises in Seoul, home values rose 6.5 per cent on a quarterly basis last quarter. This contrasts markedly with modest gains, and even declines, in several cities in Canada and mainland China that were registering some of the strongest quarter-on-quarter growth rates at the start of this year.

Asia-Pacific region, price rises in Seoul, years-long effort, presidential election, Parasite, best picture, Squid Game

A man uses his phone as he stands on an observation deck beneath the YTN Seoul Tower with a view of residential and commercial buildings on September 3. Last quarter, prime residential prices in South Korea’s capital rose 22.6 per cent year on year. Photo: AFP

Seoul’s housing boom is all the more striking given the years-long effort to cool the market. Since South Korean President Moon Jae-in took office in May 2017, the government has introduced over 20 measures to rein in prices, all to no avail.

The Bank of Korea, the country’s central bank, has painted a worrying picture of a bubble. In its latest financial stability report, published in June, it said house prices in the Seoul metropolitan area – which is home to nearly half the country’s population – were “overpriced”, and could fall drastically in the event of a liquidity shock.

However, the report’s most alarming piece of data was the surge in the price-to-income ratio. The price of the average home in Seoul has doubled since 2012, reaching 17.4 times the median household income in the first quarter of this year. In London and New York, the ratios were nearly 12 and 6.5 respectively.

While housing affordability is an acute problem for many developed and developing economies, and governments are struggling to tame prices without damaging the recovery, South Korea is a prime example of how policies to cool the market can go badly wrong.

Asia-Pacific region, price rises in Seoul, years-long effort, presidential election, Parasite, best picture, Squid Game

A couple look at a mobile phone as they attend a drive-through cinema screening in Seoul on March 21, 2020. The price of the average home in Seoul reached 17.4 times the median household income in the first quarter of this year. Photo: AFP

First, the government has focused almost exclusively on measures to curb speculation, instead of boosting supply. While this is a familiar problem in many overheated housing markets, it is exacerbated by the idiosyncrasies of South Korea’s economy and financial markets.

With households holding a much larger share of their wealth in real estate than in other countries, and prime residential property in Seoul long seen as an attractive hedge against rising economic insecurity, efforts to suppress demand – a mixture of curbs on mortgage lending and higher taxes for owners of multiple homes and those “flipping” properties – have backfired spectacularly.

Not only have they ended up discouraging sales, squeezing supply and pushing up prices further, they have riled homeowners and made it more difficult for first-time buyers to get on the property ladder.

Moreover, the cooling measures have been counteracted by abundant liquidity. While the central bank has begun raising interest rates, partly to take the heat out of the market, higher borrowing costs are a notoriously blunt tool to control house prices. They are particularly dangerous in a nation where households are among the world’s most heavily indebted, and where 80 per cent of new mortgages have floating rates.

Second, housing policy, while a hot-button issue the world over, has become intensely politicised in South Korea. Even well-intentioned efforts to increase supply have been undermined by corruption scandals that have severely damaged Moon’s administration.

In March, officials at Korea Land and Housing Corporation, the government agency in charge of building new homes, were found to have used privileged information to buy land near Seoul, which was later designated as an area for public housing projects.

That these scandals erupted in the midst of a pandemic, when the anger generated by the shortage of affordable housing reached fever pitch, have shattered the credibility of the government’s housing reforms. A crucial presidential election next March has further politicised efforts to cool the market.

Third, no other government suffering the effects of runaway house prices has had to contend with such negative publicity as South Korea. The lack of affordable housing in Seoul was vividly caught in Parasite, the 2019 South Korean film that became the first non-English language movie to win best picture at the Oscars.

Meanwhile, the dystopian Netflix series Squid Game, which captures the country’s gaping inequalities and rising household indebtedness, has become an international sensation.

While a big win for South Korea’s entertainment industry, the productions have tapped into public resentment over unaffordable housing in large cities, from Shanghai to Los Angeles. This should be reason enough for governments to heed the lessons of Seoul’s enduring property bubble.

Nicholas Spiro is a partner at Lauressa Advisory

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