[Edaily Reporter Lee Seung Hyun ] During the Moon Jae-in administration, whenever new apartments were offered for sale in most areas of Seoul, the competition ratio for pre-sales was typically in the hundreds to one, and it was not uncommon for it to reach as high as thousands to one. This was because price caps were applied not only to public housing sites but also to private ones. Since new apartments were being offered at prices 20–30% below the prevailing market rates, buyers could enjoy capital gains of hundreds of millions of won simply by winning the lottery, leading to the term “lottery-style housing subscription.”

The sales price cap system calculates the sales price based on land and construction costs when apartments are offered for sale, allowing them to be sold only at or below that price. Although it was introduced in 1977 alongside the housing subscription system, it had little significance at the time because the government was effectively controlling apartment prices directly. It began to have a significant impact during the Roh Moo-hyun administration, from 2005 to 2007.

At that time, a phenomenon known as “price alignment” occurred: when new apartments were supplied in a given area at prices higher than the prevailing market rate, the prices of surrounding apartments would rise to match those of the new units. The sales price cap system was introduced to prevent the resulting sharp spike in housing prices. It was designed to prevent developers from setting sales prices significantly higher than surrounding market rates.

Later, the Moon Jae-in administration strengthened the criteria for applying the cap and revised the system to require that new apartments be sold at prices lower than the surrounding market rates. The reasoning was that supplying new apartments at prices below the surrounding market rate would prevent nearby apartment prices from rising. However, the market did not behave as the government had anticipated. New apartments supplied at prices below the surrounding market rate quickly rose to match those rates after residents moved in. Consequently, “lottery apartments”—where winning the lottery-style housing lottery could yield profits of hundreds of millions of won—were created.

This coincided with the emergence of a “housing lottery frenzy.” Many non-homeowners, convinced that they would be fools not to apply, flocked to every pre-sale site to submit applications, resulting in competition ratios of hundreds to one or even thousands to one. Buying a home is one of the most important decisions in life, yet instead of making this choice after calm and rational consideration, people were swept up in the frenzy, leading to a surge in reckless “all-in” investments—a phenomenon that was also a consequence of the housing price cap system.

The housing price cap system has also created another problem: the benefits of this system are not being distributed to the general public but are instead concentrated among the small minority who are selected in the housing lotteries. It has devolved into a policy that does little to suppress apartment prices while the benefits go only to a select few.

This phenomenon continues to repeat itself today. The DH Banpo 124, the most anticipated project in Seoul’s Gangnam district set to go on sale at the end of the year, is projected to be priced at approximately 3 billion won for a unit with a usable area of 84 square meters (33 pyeong). A unit of the same size at the nearby Acro River Park is currently trading for over 6 billion won. This means that anyone who secures a unit at DH Banpo 124 will effectively earn a capital gain of about 3 billion won without lifting a finger. Once sales for this complex begin, cash-rich, non-homeowners will swarm to it like a swarm of bees.

Furthermore, the pre-sale price cap system has the adverse effect of undermining the viability of urban renewal projects and hindering supply. Since such projects rely on public sales to ensure profitability, lowering the pre-sale price makes it difficult to achieve that viability. In particular, at sites where the public pre-sale price is lower than the price offered to cooperative members, it is not uncommon for the project to be abandoned altogether.

The current sales price cap system urgently needs improvement. It should either be adjusted—as in the past—to ensure that sales prices are not set too high relative to surrounding market prices, or it should be abolished altogether. The government’s repeated attempts to intervene in the market are distorting it and causing adverse effects. The government’s role should not be to intervene directly in prices, but rather to ensure the market functions normally by curbing demand and stimulating supply.