Housing Permit Volume Declines for 4 Consecutive Years in First Half... Supply Cliff Expected in 2025?

[Asia Economy Reporter Lee Chun-hee] The volume of housing permits issued in the first half of the year has decreased for four consecutive years. Considering that it typically takes 5 to 6 years from permit issuance to construction start and occupancy, the supply of housing is expected to continue declining.

The Ministry of Land, Infrastructure and Transport announced on the 30th that the nationwide housing permit volume for June was recorded at 33,079 units. Other figures include 50,201 units for construction starts, 33,354 units for sales, and 46,160 units for completions.

Based on the first half of the year, the total nationwide housing permit volume was 188,848 units. The cumulative permit volume for the first half has been declining since it recorded 355,309 units in 2016. The figures were 297,787 units in 2017, 249,505 units in 2018, and 226,594 units last year. This year's cumulative figure is the lowest since 182,063 units in 2013. It is also the first time since 2014 that the figure has fallen below 200,000 units.

Industry insiders generally estimate that it takes 5 to 6 years from permit issuance to construction start and occupancy. This is why Minister Kim Hyun-mi of the Ministry of Land, Infrastructure and Transport and the government argue that "the low permit volumes in 2014-2015 are the cause of the current supply shortage." Considering this, the nationwide housing supply volume is inevitably expected to continue decreasing at least until 2025.

Regionally, the decline was particularly notable in the Seoul metropolitan area, including Incheon. In the first half of this year, Incheon’s housing permit volume was 8,239 units, a sharp 62.4% decrease compared to 21,885 units last year. Seoul also saw a 31.4% decrease, with 25,808 units this year compared to 37,643 units last year. Even when expanded to the entire metropolitan area, the figure fell below 100,000 units to 99,995 units this year, down 22.5% from 129,028 units last year. The provinces also saw an 8.9% decrease compared to the previous year.

By type, both apartments and non-apartment housing showed similar declines. Apartment permits in the first half of this year were 137,428 units, down 16.7% from 164,924 units last year. Compared to the 5-year average of 196,339 units, this is a sharp 30.0% drop. Non-apartment housing also decreased by 16.6% compared to last year and 42.6% compared to the 5-year average.

Housing Construction Performance Nationwide in June 2020 (Provided by the Ministry of Land, Infrastructure and Transport)

However, construction start figures, which reflect supply performance two years ahead, showed a recovery trend. The nationwide housing construction starts in the first half of this year were 218,135 units, a 10.8% increase from 196,838 units last year. However, this is still 11.9% lower than the 5-year average of 247,576 units.

Regionally, Incheon showed an increase with 22,108 units in the first half, up 36.9% from last year and 134.8% compared to the 5-year average. Seoul also showed a recovery trend with 38,827 units in the first half of this year, up 22.6% from 31,662 units last year and 9.7% compared to the 5-year average of 35,408 units.

By type, apartments showed a marked recovery. Nationwide apartment construction starts in the first half of this year were 167,892 units, a 20.3% increase from 139,522 units last year. Compared to the 5-year average, there was a 3.4% recovery. However, non-apartment housing decreased by 12.3% compared to last year and 41.0% compared to the 5-year average, with 50,243 units in the first half.

Sales of multi-family housing units decreased. Nationwide multi-family housing sales in the first half of this year were 129,571 units, down 9.5% from 143,167 units last year and 25.6% compared to the 5-year average of 174,155 units. In particular, Seoul’s sales in the first half were 9,673 units, failing to reach 10,000 units, showing a 22.7% decrease compared to last year and a 32.3% decrease compared to the 5-year average.

Housing completions also decreased. Nationwide completions in the first half of this year were 235,144 units, down 13.4% from 271,410 units last year and 5.6% compared to the 5-year average of 249,181 units. However, Seoul recovered to 42,312 units, showing a 17.1% increase compared to last year and a 24.5% recovery compared to the 5-year average.