While there is a lot to like about Korea, its economy, people, etc., there are two major issues that totally stymie it: education and real estate. They are the two biggest contributors to inequality in Korea. And they are the two areas that are completely wrapped up in their own mutually exclusive paradoxes, basically because everyone is so busy arguing over how to treat the symptoms that they do not understand the disease.

Today, real estate is back in the spotlight, as the government wants to relax anti-speculation regulations in order to jumpstart the real estate market. Good luck with that.

All this talk of Korean real estate being “hot” or “in a slump” completely misses the point because the housing market here is besieged by two contradictory needs:

  1. To lower prices, so apartments are more affordable.
  2. To keep prices rising, so the real estate market stays active.

Making matters worse, Koreans overwhelmingly use their apartment as their primary investment/savings tool, much moreso than in most countries (74% in Korea versus 42% in Canada or 25% in the United States). So to burst the bubble would ruin a lot of people.

But apartments in Korea are so expensive — the average home price is 7.7 times the average income (versus 3.5 in the United States), and that’s just nationwide, in Seoul that ratio is much worse — that rising prices would ruin a lot of other people.

Clearly, the country needs to deleverage household debt, but everyone cannot deleverage at once without causing a recession. So what is the solution? I’m no economist, but the only thing I can see would be letting inflation rise. Like in many countries these days, Korea’s inflation is persistently running below expectations, a sure sign that demand is slack. But if the country were able to get inflation up to, say 4%, then over a few years, that home price-to-income ratio could come down without reducing household spending.

Or maybe there are other solutions. But clearly, continually yo-yoing between pushing up the real estate market and then clamping down on it is a strategy doomed to fail.