[In-Depth Review] Tasks for Ensuring a Smooth Supply Plan Implementation

Senior Research Fellow Kim Deokrye, Korea Housing Institute

Tasks for Ensuring a Smooth Supply Plan - Kim Deokrye, Senior Research Fellow at the Korea Housing Institute

Supply policies aimed at creating a Republic of Korea where all citizens can live without worrying about housing are gaining momentum. A total of 836,000 housing units will be supplied in metropolitan areas, including 320,000 units in Seoul. To achieve this, the supply methods outlined in the 2·4 Plan are very diverse, including redevelopment projects, urban public housing complex projects (station areas, semi-industrial zones, low-rise residential areas), small-scale urban regeneration, non-residential remodeling, new purchases, and public land development. Development of new towns in the metropolitan area is also accelerating. Along with Namyangju Wangsuk, Hanam Gyosan, Goyang Changneung, Bucheon Daejang, and Incheon Gyeyang, the Gwangmyeong Siheung district will be added as the sixth new town.

When combining the housing supply volumes announced in the 2·4 Plan with those previously announced through the Housing Welfare Roadmap and the 3rd New Town projects, the total reaches around 2 million units. This is a scale similar to the 2 million housing unit supply plan of the 1990s when first-generation new towns such as Bundang and Ilsan were supplied.

Based on the Kookmin Bank price index, nationwide housing prices rose by 15% to 20% in 1989 and 1990, with some areas experiencing increases exceeding 30%. However, as the first-generation new towns were actively supplied, housing prices nationwide declined for five years from 1991 to 1995. This was the effect of housing supply. It is also an effect that can be expected if the government's supply plans proceed without disruption.

There are several issues that need to be resolved to achieve this. First, there is a time lag problem inherent in the land securing criteria. It takes considerable time for the housing volumes announced in the 2·4 Plan to be supplied to the market. Until then, managing people's anxiety is important. Excessive loan and tax-related regulations that hinder residential mobility within the existing stock housing market must be removed to ensure smooth residential movement. The pace of increase in property holding taxes should be controlled, and loan regulations based on housing value should be eased to actively support home ownership for non-homeowners and younger generations.

Also, even if the start is led by the public sector, private participation must be further expanded. Public-led housing supply policies have limitations. Over the past five years (2015?2019), the public sector's supply capacity (the portion of permits issued to the public sector out of total permits) was only 13.2%. In other words, the private sector has supplied 86.8% of the total supply volume. Especially in Seoul, the public sector supplied only 5.1% of the total volume, with about 95% supplied by the private sector. Even if the public sector's supply capacity is strengthened in the short term, it is impossible to suddenly increase the public sector's supply capacity from around 10% to 40?50%. Even if it were possible, it would still be difficult to balance market supply and demand without the private sector handling more than half. This is why the supply-demand problem in Seoul cannot be solved without utilizing the private sector.

Moreover, while some people want housing supplied by the public sector, many prefer high-quality private brand apartments with quite good quality. Even if public-led supply is necessary in certain areas, regulatory relaxation and incentives are needed to create an environment where the private sector can directly participate in other areas. All models?public-led, private-led, and public-private cooperation?must coexist. Without a system capable of supplying housing through public leadership, public-led supply policies will not only struggle to achieve their goals but may also fail. While expanding the public sector's supply capacity, private participation is essential until a stable public supply capacity is established.

The types of housing supplied by the private sector include public rental, public sale, private rental, and private sale, but among these, private sales account for about 95% of the total supply volume, making it the largest. Ultimately, private participation is possible through the normalization of the private sale market. The price ceiling system regulating the private sale market should be fully reviewed and transformed into a market-friendly system, and demand concentrated in the sale market should be dispersed to the existing housing market.

The Constitution stipulates the state's duties and the rights of citizens. The state must strive to ensure that all citizens can enjoy comfortable residential life through housing development policies. All citizens have the freedom of residence and movement and must not have their freedom of housing infringed upon. Let us reflect on this once again.

Kim Deokrye, Senior Research Fellow, Korea Research Institute for Human Settlements