[Initial Insight] Revisiting President Yoon Seok-yeol's Real Estate Pledges

February 2022. At that time, Yoon Seok-yeol, the presidential candidate of the People Power Party, announced a pledge to supply 2.5 million housing units nationwide to stabilize the real estate market. It was a private-sector-led plan with construction companies building 2 million units. He promised to ease regulations on reconstruction and redevelopment and develop new towns to build up to 1.5 million new housing units in the metropolitan area alone. Now, two years later, the housing market is precariously hanging on the edge of a supply cliff.

This can be seen even by looking at the representative supply indicators such as permits and groundbreaking volumes. Based on the president’s five-year term, a simple calculation shows that 500,000 housing units must be completed annually to fulfill the pledge. Quarterly, this means more than 120,000 units. However, according to data from the Ministry of Land, Infrastructure and Transport, the groundbreaking volume in the first quarter of this year was only 45,000 units, combining private (about 44,000 units) and public (about 1,000 units) sectors.

This situation is not the government’s fault. The biggest factors were rising loan interest rates and increased construction costs. The government is also trying hard to resolve the supply cliff. Since early this year, it has announced a series of measures including easing reconstruction and redevelopment regulations, reorganizing aging planned cities, and plans to start construction on the 3rd new town. Although these measures have been criticized by civic groups as election-driven economic stimulus policies, the current supply market cannot afford to be selective. Last week, the Ministry of Land, Infrastructure and Transport, the Ministry of Trade, Industry and Energy, and the Ministry of Economy and Finance all mobilized to meet with people from the construction materials industry to try to lower construction costs.

However, solving the supply problem in this way has its limits. These days, private construction companies refuse to take orders if they are not profitable. Unless the real estate market recovers, no matter how much regulations are eased or land is provided for construction, they will likely refuse. The private sector’s construction orders in the first quarter of this year amounted to 22.2057 trillion won, a sharp 36.2% drop compared to the same period last year, reflecting this background. “The government cannot force construction companies to build when they are extremely conservative in reviewing project feasibility. Leaving supply solely to construction companies is not the answer,” is the voice from the field.

If providing a stage for the private sector is not enough, the public sector must step in directly. This was the case during former President Lee Myung-bak’s administration. In 2008, concerned about a contraction in private supply, the public sector supplied housing through the Bogeumjari Housing program. The total supply was about 130,000 units. Due to the unrealistic concept of “half-price apartments,” demand for sales was held back, causing jeonse (long-term lease) prices to rise and putting private construction companies in a difficult position. Nevertheless, it alleviated concerns about supply shortages and had the effect of lowering housing prices.

During the current housing market downturn, the public sector must play a buffering role. It is urgent to take measures to ensure public housing supply centered on the Korea Land and Housing Corporation (LH). If direct construction is difficult, supply volume must be maintained by increasing the number of purchased rental housing units. The current decline in groundbreaking volumes will lead to a supply shortage in 2026?2027, and from then on, the housing market will become unstable.

When sales prices and jeonse prices soar, the most affected are ordinary citizens. For their sake, policies to secure public sale housing and rental housing that are more affordable than the private sector are necessary. Through experience, we already know very well what social and economic problems frustration, inferiority, and desire triggered by soaring housing prices can cause.