[Q&A] Ministry of Land, Infrastructure and Transport, "Supplying 50,000 Housing Units Through Public Reconstruction Is Fully Feasible" (Comprehensive)

Hong Nam-ki, Deputy Prime Minister and Minister of Economy and Finance, is announcing plans to expand housing supply in the Seoul metropolitan area, including the Seoul region, at the Government Complex Seoul in Jongno-gu, Seoul, on the 4th. Photo by Kang Jin-hyung aymsdream@

[Asia Economy Reporters Jang Se-hee, Lee Chun-hee] "Only reconstruction complexes that willingly agree are possible. Benefits such as increased floor area ratio and lifted height restrictions can be preferred by the union members." (Hong Nam-ki, Deputy Prime Minister and Minister of Economy and Finance)

"Assuming about 20% participation, it is expected that about 50,000 housing units will be supplied. Complexes with good profitability or those that can reconstruct independently by the union have low incentives to participate, but there are complexes that can be seen to have sufficient incentives." (Kim Heung-jin, Director General of Housing and Land Office, Ministry of Land, Infrastructure and Transport)

The government stated that supplying 50,000 housing units through public reconstruction is sufficiently possible. Although it is difficult to use coercive measures, since there are sufficient incentives, complexes with low profitability or those facing difficulties in project promotion have enough incentives to participate.

Deputy Prime Minister Hong said at a briefing of the Government-wide Task Force (TF) on Housing Supply Expansion held at the Government Seoul Office on the 4th, "Public reconstruction applies only to complexes where union members willingly participate," adding, "if union members do not agree, the existing method will be applied."

Regarding the suggested proportion of '20%', Director General Kim explained that considering the incentives, it was assumed that about this proportion of projects would participate, and the volume of 50,000 housing units was set accordingly. However, regarding the criticism that past proposals to increase housing supply through incentives such as floor area ratio increases were met with indifferent market responses and failed, no clear solution seemed to emerge.

Through the 'Plan to Expand Housing Supply in the Seoul Metropolitan Area and Surrounding Areas' announced that day, the government decided to newly supply a total of 132,000 housing units in the metropolitan area. Public idle lands such as the Tae-reung Golf Course, a military golf course, the Seoul Regional Public Procurement Service in Seocho-gu, and the Seoul Regional Headquarters of Korea Land and Housing Corporation (LH) in Gangnam-gu will be developed as public housing sites to supply 33,000 housing units.

The supply scale of the Yongsan Maintenance Depot in Seoul, previously announced as 8,000 units, will also be increased to 10,000 units, and an additional 4,000 housing units will be supplied through high-density development in project sites planned for complex development. The floor area ratio of existing planned sites such as the 3rd New Town will also be raised to supply an additional 20,000 housing units.

Kim Hyun-mi: "This is not a rental-focused policy... a significant portion is for sale units"

Minister of Land, Infrastructure and Transport Kim Hyun-mi is briefing on April 4 at the Government Seoul Office in Jongno-gu, Seoul, about plans to expand housing supply in the Seoul metropolitan area and surrounding regions. Photo by Kang Jin-hyung aymsdream@

Below is a Q&A with Deputy Prime Minister Hong, Minister of Land, Infrastructure and Transport Kim Hyun-mi, and Acting Mayor of Seoul Seo Jeong-hyeop.

▲Regarding reconstruction, if the private sector refuses to participate, are there inducement or coercive measures? Are there plans to provide incentives to the private sector and union members?

= (Hong Nam-ki) High-density reconstruction occurs only in cases of public participation. Only reconstruction complexes that willingly agree are possible. If they do not agree, the existing system applies. It is not a situation where coercion is possible. Benefits such as increased floor area ratio and lifted height restrictions can be preferred by union members. That is why only 20% of the volume was allocated.

▲The market points out that regulations such as a minimum two-year residence requirement and a 50-point structural safety score are excessive. Some say that easing these regulations is necessary for supply effects beyond floor area ratio increases. Are there any additional relaxation measures?

= (Kim Hyun-mi) The requirement to have lived for more than two years in reconstruction is consistent with the current system where priority occupancy rights are given to those who have lived in the area for more than two years when selling units. Reconstruction is a project to renew the neighborhood where one lives, so I think this system fits the purpose. There are no special changes to other regulations.

▲Younger people have long-term income, so additional measures to increase loans may be necessary. Are there any plans to review additional financial support measures?

= (Hong Nam-ki) The special supply for first-time homebuyers has been increased, and the loan-to-value ratio (LTV) for mortgage loans has been increased by 10 percentage points. Interest rates on jeonse and monthly rent loans have also been further lowered. These are included in the 7·10 measures. I believe the groups that will benefit the most are youth and newlyweds. If additional review is needed depending on the situation, we will review all policies at any time.

▲There is a direction to expand pre-sale subscriptions. Does this mean the previous policy to expand post-sale has been abandoned?

= (Kim Hyun-mi) The government's policy to increase post-sale remains unchanged. Pilot projects are proceeding normally. However, since many are worried about supply this time, the pre-sale subscription system is implemented to disperse demand in advance and reassure people. It will be focused on new towns next year and the year after. If possible, it will also be introduced in Tae-reung. Not all units will be pre-sold.

▲More than half of the newly announced volume is public redevelopment and reconstruction. Are there places that have expressed willingness so far? Reconstruction requires more than two-thirds resident consent; how was the 50,000 units figure derived?

= (Kim Hyun-mi) Public redevelopment includes areas where maintenance zones have been lifted this time. There was demand from areas willing to participate in public redevelopment, so it was reflected in the system improvement. In Seoul, there are 93 projects that have been designated as maintenance zones but have not received project implementation approval, totaling about 260,000 units. About 20% of these are estimated to participate in public reconstruction, resulting in 50,000 units.

▲Camp Kim has not yet been fully returned, and the environmental pollution survey is not complete. When will supply be possible?

= (Kim Hyun-mi) The environmental survey for Camp Kim is ongoing. Since the US military has already fully relocated from this site, once negotiations between the two countries on environmental issues are completed, early return is not a problem. The Ministry of National Defense will actively engage in negotiations.

▲The measures seem to indicate a policy focus on rental rather than ownership.

= (Kim Hyun-mi) This is not a rental-focused policy. Many supply measures have been announced, and a significant portion is for sale units. While we will actively increase rental housing, it is not the case that only rentals will be supplied without sales. Korea's public rental housing will reach the OECD average of 8% this year. To stabilize housing for low-income groups, it is urgent to continuously and stably supply public rental housing. By 2022, it will exceed the OECD average to 9%, and by 2025, it will reach 10%. We are working to establish a foundation where 25% of all tenant households live in public rental housing. This will ensure housing stability for those in difficulty, youth, newlyweds, and low-income groups.

Ministry of Land, Infrastructure and Transport: "Public reconstruction has low incentives for profitable complexes but sufficient incentives for early-stage complexes"

Minister of Land, Infrastructure and Transport Kim Hyun-mi is attending the Housing Supply Expansion Task Force meeting held at the Government Seoul Office in Jongno-gu, Seoul on the morning of the 4th. Photo by Kang Jin-hyung aymsdream@

Below is a Q&A with Deputy Director General Bang Ki-seon of the Ministry of Economy and Finance, Director General Kim Heung-jin of the Ministry of Land, Infrastructure and Transport Housing and Land Office, and Kim Seong-bo, Head of Housing and Architecture Headquarters of Seoul City.

▲Among the 132,000 units announced today, how many are expected to be supplied within 1-2 years or 2-3 years?

= (Kim Heung-jin) For idle lands, sites without existing buildings can be developed earlier. If demolition of existing public office sites is completed and construction starts, sales can be possible. Although it will take some time until move-in, construction can be faster than expected. We plan to accept pre-subscriptions for Tae-reung Golf Course around the end of next year. While actual move-in will take some time, there will be some volume in terms of sales and subscription.

▲Regarding public reconstruction in Seoul, it was estimated that 50,000 units correspond to 20% participation. What is the basis for this 20%?

= (Kim Heung-jin) Currently, there are 93 complexes in Seoul that have passed safety inspections but have not yet received project implementation approval, totaling about 260,000 units. Even if public reconstruction is introduced, it is difficult for all complexes to participate. Especially, complexes that have received project implementation approval are unlikely to revert to high-density public reconstruction. Therefore, the policy is expected to work for early-stage projects. Considering these incentives, it is expected that about 20% of early-stage projects will participate, supplying about 50,000 units.

▲The 50,000 units for public reconstruction assume 20% participation of all reconstruction complexes. How much of this intention has been confirmed?

= (Kim Heung-jin) Since the public reconstruction plan has not been announced before, the 50,000 units figure does not mean that unions have directly expressed participation intentions. Please understand it as an intention to encourage participation assuming a certain proportion of projects with demand will participate, aiming to supply about 50,000 units.

▲Two years ago, there was a plan to relax floor area ratios in quasi-residential and commercial areas in Seoul in exchange for including public rental housing. Since the results were limited then, what is the basis for expecting 20% participation now?

= (Kim Heung-jin) Complexes with good profitability or those that can reconstruct independently by the union among early-stage projects have low incentives to participate. However, projects with lower profitability, disagreements among residents, or very early-stage projects are judged to have sufficient incentives if public participation accelerates project progress, improves transparency, and reduces union burdens through floor area ratio increases and height restriction relaxations.

▲Among the 132,000 new units, what are the proportions of public vs. private and sale vs. rental?

= (Kim Heung-jin) It is difficult to specify exact proportions. For example, if Tae-reung Golf Course is developed as a public housing district, some will be public rental housing and some will be for sale. The same applies to the site near the Government Gwacheon Office. Details will be finalized as district plans are confirmed.

▲What is the approximate ratio of public rental to public sale units in new idle housing sites?

= (Kim Heung-jin) It varies by district. Currently, public housing districts are required by the Public Housing Special Act to supply at least 35% of total units as rental housing. Some national lands may be supplied entirely as rental housing. Therefore, it is difficult to generalize. Roughly, about half are sale units including public sale, and about half are rental housing. However, this will be adjusted during detailed project planning.

▲Regarding the donation method in public reconstruction, currently there are two types: rental housing and public sale. Is cash donation not considered?

= (Kim Heung-jin) More than half of the increased floor area ratio, about 50-70%, will be donated depending on project characteristics. Half of this will be rental housing and half will be sale housing. Cash donation is not included.

▲What is the Sangam DMC site? It is said to supply 2,000 units. What floor area ratio will be applied? Will all be supplied as housing?

= (Kim Seong-bo) It is an unsold site intended to be used as a landmark. Not all will be used for housing; a complex business center is planned, and a mixed-use including residential parts is planned.

▲Regarding public redevelopment, are there complexes that have expressed willingness? Is there a confirmed schedule?

= (Kim Heung-jin) A local government briefing has been held once, and another briefing for residents is planned this month. A public offering is scheduled for next month. When the plan was first announced in May, maintenance-lifted zones were not included. Including these zones in the public offering may increase the public redevelopment volume from the initially announced 20,000 units to about 40,000 units.

▲Regarding the plan to supply 30,000 units through reconstruction of old permanent rental housing, what is the schedule?

= (Kim Heung-jin) A pilot project is planned this year. The most important issue in reconstructing old permanent rental housing is solving the relocation problem of current residents. We plan to select sites with vacant houses or spare land nearby to relocate residents and develop in a cyclical manner, and proceed with pilot projects within this year. Detailed relocation plans will take some time.