[Editorial] Household Debt Management Plan Must Not Harm Genuine Borrowers

The government announced a new household debt management plan on the 1st. As previously signaled, the core of the plan is to prohibit maturity extensions for mortgage loans held by multiple-home owners and to tighten this year’s household debt growth target to 1.5%. The government also aims to keep the ratio of household debt to gross domestic product (GDP) at around 80% through 2030 and to gradually reduce the share of policy loans from the current 30% to about 20%.
The new measures pursue two goals: stabilizing housing prices and curbing household debt. These objectives are closely intertwined. By restricting lending, the government seeks to cool housing prices and prevent the 2,342 trillion won in household debt from surging further. The sharp rise in home prices in recent years has been closely linked to the expansion of mortgage lending.
Tighter control over loans will leave many buyers with insufficient funds, which should help stabilize housing prices. Excessive borrowing may not appear problematic when the economy is strong, but once interest rates rise or home prices fall, it becomes a heavy drag on the economy. Recent increases in banks’ delinquency rates show that such risks are already surfacing.
The ban on extending loans for multiple-home owners could increase the number of properties for sale and thereby put downward pressure on prices. About 12,000 housing units are expected to be affected this year alone, and a significant portion of them may come onto the market. Combined with the reinstatement of heavier Capital Gains Tax on multiple-home owners from May 9, the ban on loan extensions is expected to help rein in housing prices.
While it is necessary to curb both soaring home prices and the rapid growth of household loans, there is a crucial point that deserves attention. One issue is the impact on genuine end-users. Households without a home, who are willing to stretch their finances to buy their first property, may be harmed by the government’s lending restrictions. Even if more properties are listed due to tighter rules on multiple-home owners, these buyers may still be unable to purchase because of loan limits. If there are homes on the market but no buyers who can obtain financing, the policy’s effectiveness will be halved. In the end, those with ample cash stand to benefit the most.
In the short term, the combination of a ban on loan maturity extensions and heavier Capital Gains Tax will almost certainly increase the number of properties for sale. However, once the temporary relief from the heavier Capital Gains Tax expires on May 9, listings could dry up again. Landlords and multiple-home owners who fail to sell within the loan maturity period may instead raise rents, shifting the burden onto tenants.
Like government debt, household debt can become a drag on the national economy once it exceeds an appropriate level relative to the size of the economy. As seen during the foreign exchange and financial crises, when borrowers cannot repay their loans, bank balance sheets deteriorate and the entire economy can be shaken. The government’s latest household debt management plan appears to be grounded in this concern.
It is difficult to say with certainty how tougher regulations on multiple-home owners will actually affect the real estate market. History shows that even when the government tightens the screws through lending rules and tax policy, outcomes can diverge from expectations. The authorities should first verify whether the new regulations are truly effective in stabilizing home prices, and if the market response remains lukewarm, they must consider additional measures.
In real estate policy, the first priority should always be expanding supply, not regulation. Only when supply is increased on one hand and appropriate regulatory tools are used on the other can real synergy be achieved. Heavier Capital Gains Tax does not automatically translate into more properties on the market. If that is the case, it is worth seriously considering a shift toward lower Capital Gains Tax and higher property holding taxes. In other words, an exit route must be opened. Without such an outlet, multiple-home owners are likely to turn to gifting properties or simply hold on to them to the end.