Seoul Faces Debt Dilemma Amid Housing Expansion

Seoul City is once again in the spotlight, this time over a controversial plan to issue 350 billion won in new local bonds to finance a major public rental housing expansion. The move, announced in late September, follows three years of aggressive debt reduction by the city—only to see that hard-won progress reversed, at least in part, by a new round of borrowing. The reason? At least on the surface, officials say it’s the financial strain from the central government’s high-profile “Livelihood Recovery Consumption Coupon” program, which aims to boost domestic spending and revive a sluggish economy. But as The Fact reports, the real story is more complicated, involving deep-rooted tensions over who pays for national policies and how the capital city is treated compared to other regions.

The numbers are striking. Of the roughly 580 billion won earmarked for Seoul’s public rental housing supply initiative, about 60%—or 350 billion won—will be raised through the new bond issue. This is no small sum, and it comes after Seoul had already managed to reduce its debt by nearly 600 billion won over the past three years. City officials insist the borrowing is an “unavoidable choice,” but critics argue it’s a symptom of a broken fiscal system that pits local governments against the central authorities in a perpetual tug-of-war over funding responsibilities.

What’s fueling the controversy is the uneven way the central government is footing the bill for the consumption coupon scheme. According to The Fact, most of Korea’s 17 provincial and metropolitan governments received 90% of their program funding from the national treasury. Seoul, however, got just 75%, with the city and its districts expected to make up the remaining 25%. The central government defends this as a logical decision, pointing to Seoul’s high fiscal self-reliance and its robust tax base. “Seoul is a city with a strong ability to raise its own funds compared to other localities,” government officials have said.

But Seoul’s leaders see things differently. They argue that this policy amounts to reverse discrimination, penalizing the capital for its economic strength while ignoring its unique challenges—like aging infrastructure, a rapidly growing elderly population, and persistent housing shortages. “Seoul is in the same living zone as Gyeonggi Province, with similar population and economic scale, yet only Seoul faces a differentiated subsidy rate that results in an additional annual fiscal burden of about 3.17 trillion won,” Mayor Oh Se-hoon told the Ministry of Economy and Finance in a face-to-face meeting last month. According to data from the Ministry of the Interior and Safety’s 2025 Fiscal Capacity Index, both Seoul (1.032) and Gyeonggi (1.180) are classified as ‘non-subsidized’ entities, yet Gyeonggi received the full 90% subsidy for the coupon program, while Seoul did not.

The implications for ordinary citizens are far from abstract. While the city’s new bonds don’t mean an immediate spike in tax bills, the debt must eventually be repaid—potentially at the expense of future welfare programs, infrastructure projects, or youth initiatives. As The Fact notes, “the benefits of the consumption coupon and the burdens of new debt are being handed to Seoulites at the same time.” The city has even taken its case to the streets, hanging a massive banner on the front of the Seoul Metropolitan Library that reads, “Seoul is blocking the wave of debt that will return to the youth.”

Seoul’s district governments are also sounding the alarm. In a joint declaration with Mayor Oh on September 22, district leaders complained that local governments are being forced to share costs for national policies without having a say in shaping them. The statement called out what it described as a “reverse discriminatory structure” in the way subsidies are distributed. The issue was also front and center at a recent local finance forum, where experts floated ideas like shifting more tax authority from the central government to localities as a way to restore fiscal balance.

Meanwhile, the Ministry of Land, Infrastructure and Transport has announced an ambitious plan to expand public rental housing supply nationwide—a move that will add about 3.5 million units, with a special focus on the 15-64 age group and young adults aged 15-29, who are struggling the most in the current housing market. The ministry has stressed the importance of close cooperation with local governments, including Seoul, to overcome regulatory hurdles and overlapping jurisdictional issues that have long plagued the sector. “We are working on policy improvements and cooperation with Seoul City to resolve overlapping jurisdiction issues,” the ministry said in its October 5 statement.

But the broader economic context is hardly reassuring. Despite the government’s efforts to stimulate spending through the consumption coupon and other measures, the recovery remains fragile. As Newsis reports, retail sales fell 2.4% in August—the biggest drop since February 2024—after a brief uptick in July when the coupon program began. Investment and construction activity have also declined, while consumer sentiment slipped in September after five months of gains. The job market is a mixed bag: employment among 15-64 year-olds is at a record high, but manufacturing and construction jobs continue to shrink, and youth employment has fallen for 16 straight months.

Government officials remain optimistic, arguing that recent dips in consumption and investment are temporary and that the coupon program’s effects are still being felt. According to the Ministry of Economy and Finance, “When looking at July and August together, there is a continued upward trend in industrial production, retail sales, and facility investment compared to the second quarter.” The ministry also points out that 42.5% of the 5 trillion won distributed via the coupons was used for additional consumption—a higher rate than previous emergency relief programs.

Still, experts warn of looming risks, especially on the export front. September exports hit a record monthly high, but that figure was inflated by additional working days due to the timing of the Chuseok holiday. When adjusted for daily averages, exports actually fell compared to a year ago, and trade with the U.S.—a key market—was down 1.4%. Ongoing tariff disputes with the U.S. threaten to make matters worse, with the prospect of new duties on semiconductors and pharmaceuticals joining existing levies on cars and steel. “Tariffs are a negative factor for growth,” said Professor Lee Jeong-hwan of Hanyang University. “The economy is structurally difficult, and export uncertainty, tariff issues, and the global slowdown are all converging.”

Other economists echo the need for caution. Professor Lee Jeong-hee of Chung-Ang University noted that while the coupon program may not have sparked a surge in spending, it likely prevented an even sharper downturn. “There’s a tendency for consumption coupons to be used intensively at first,” he said, adding that the real test for the economy will come in the fourth quarter, as global and domestic uncertainties persist. He also pointed to the importance of market diversification, suggesting that Korea’s recent export gains outside the U.S. could offer a way forward.

For now, Seoul’s leaders say they’ll keep pressing the central government for a fairer deal, while also working to ensure that the city’s ambitious housing plans don’t saddle future generations with unsustainable debt. Whether those efforts will pay off—or whether the underlying fiscal challenges will simply resurface in another form—remains to be seen.