[8·4 Supply Measures] "Market Calm" VS "Insufficient with Rental Housing"

Expert Analysis on the August 4 Real Estate Supply Measures

130,000 Housing Units Supplied, Exceeding Expectations
Positive Impact on Market Stabilization but

Mixed Opinions on Effectiveness in Curbing House Price Increases

"Lack of Quality Mid-Income Housing Near Workplaces Drives Price Increases"
Public Rental and Supply Outside Seoul Are Insufficient Solutions

Participation in Public High-Density Redevelopment Likely to Vary by Region

Hong Nam-ki, Deputy Prime Minister and Minister of Economy and Finance, is speaking at the 'Housing Supply Expansion Task Force Meeting' held on the morning of the 4th at the government Seoul office video conference room. From the left, Lee Ho-seung, Chief Secretary for Economic Affairs, Koo Yoon-chul, Director of the Office for Government Policy Coordination, and Hong Nam-ki, Deputy Prime Minister and Minister of Economy and Finance. Photo by Kang Jin-hyung aymsdream@

[Asia Economy Reporter Onyu Lim] Experts evaluated the government's announcement on the 4th regarding the supply plan of 130,000 new housing units in the Seoul metropolitan area and surrounding regions, stating that the volume of supply could somewhat ease market anxiety. This is because the supply volume was expanded to over 130,000 units, far exceeding the initially expected 100,000 units.

However, opinions differ on the effect of stabilizing housing prices. Although 33,000 units are planned to be supplied by developing new sites such as the Taereung Golf Course, it is expected that the high proportion of rental housing will limit the absorption of middle-class demand, which is a cause of rising housing prices in Seoul. The policy to encourage high-density urban development by increasing floor area ratios through public-participation reconstruction is positive in itself, but it is uncertain whether significant profits recovered through rental housing, etc., will be able to attract participation from reconstruction complexes in Gangnam.

◆Shortage of housing to absorb middle-class demand in Seoul...= The supply scale will increase by developing idle sites such as Taereung Golf Course and the Yongsan railroad maintenance depot site, and by raising floor area ratios in the 3rd new town. However, there are criticisms that this is insufficient to solve the housing shortage in Seoul. Eunhyung Lee, a senior researcher at the Korea Construction Policy Institute, pointed out, "If you increase the floor area ratio to build more houses, naturally the number of supplied houses will increase, but the positive effect is limited to that."

She explained that the rise in Seoul housing prices stems from the shortage of middle-class housing with excellent proximity to workplaces and good living conditions, and that the supply of public rental housing and housing outside Seoul does not adequately address this issue. Yang Ji-young, director of R&C Research Institute, also said, "Housing for low-income groups such as newlyweds is necessary, but what is needed now is general housing," adding, "The supply of public rental housing and the rise in housing prices are separate issues."

Opposition from residents in development areas such as Taereung Golf Course and the 3rd new town may also be an obstacle. Researcher Lee criticized, "Increasing the floor area ratio is a negative factor in terms of creating a pleasant residential environment," and pointed out, "Indiscriminate high-density development can cause side effects such as infringement of sunlight and views, as well as traffic problems."

Daechi-dong Eunma Apartment, recognized as a representative reconstruction complex in the Gangnam area

◆"Public high-density reconstruction, uncertain participation from Gangnam"= Regarding the plan to supply 50,000 units over five years through public-participation high-density reconstruction, there is a high expectation that participation will vary by region. Professor Daejung Kwon of Myongji University’s Department of Real Estate said, "For reconstruction complexes with low profitability and limited capacity to pay burdens, increasing the floor area ratio could be an opportunity."

However, many voices predicted that the effect would be limited. Instead of just increasing the floor area ratio, private participation may be low because corresponding compensation such as public sale or rental must be paid. Director Yang pointed out, "If the floor area ratio is raised and the area is changed to quasi-residential, the supply volume itself will increase, but since a large portion of the increased volume must be allocated to rental housing, it remains to be seen how much private participation there will be."

Concerns have also been raised that the residential environment may deteriorate due to high-density development. Jin-hyung Seo, president of the Korea Real Estate Society and professor at Gyeongin Women’s University, said, "Not only floor area ratio and height restrictions but also building coverage ratio should be relaxed together," adding, "Institutional measures should be established to prevent indiscriminate development, such as securing park land or road land desired by citizens through donations."

◆"Acknowledged supply shortage, but..."= Experts viewed positively that the government recognized the housing supply shortage and took measures. Professor Seo evaluated, "It is positive that the government acknowledged the supply shortage and sent a signal to increase supply." However, it was difficult to find experts who expected housing price stabilization from the measures. Senior researcher Lee said, "Although 130,000 new units were announced, the actual effect on stabilizing housing prices will not be significant," pointing out, "It is unclear whether these units are 30-pyeong apartments or 12-pyeong youth housing."

Director Yang also diagnosed, "Since the root of housing price increases is Seoul, supply that can absorb Seoul’s housing demand is necessary," adding, "Although supply will increase through the 3rd new town, etc., it will not be able to stop the rise in Seoul housing prices."

Therefore, voices are calling for measures that can produce real supply effects rather than just simple housing numbers. Professor Seo said, "In Seoul, although the population is decreasing, the number of households is increasing, so there is a new demand for 120,000 units per year," adding, "As income levels rise, the desired housing standards also increase, so housing supply that meets these standards is necessary."