[Public Voices] Expanding Purchased Rental Housing: The Key Is Execution

Significance as a Short-Term Solution to the Jeonse Crisis
Key Role in Stabilizing Housing for Low-Income Households and the Market
Strengthening Support Measures Such as Tax Incentives

Recently, housing prices have been rising again. The cumulative decrease in housing permits and construction starts over the past two years makes the current situation even more concerning. While the jeonse (long-term lease) and sale prices are currently fluctuating mainly in apartments, it is highly likely that non-apartment housing prices will rise soon. Due to the ‘jeonse phobia’ caused by concerns over jeonse fraud, the supply reduction over the past two years has been even more severe in the non-apartment sectors such as villas, multi-family, and multi-household homes.

Since the COVID-19 pandemic, unprecedented fluctuations in jeonse prices in South Korea’s housing market have exposed a large amount of previously hidden ‘jeonse fraud.’ As the perception that ‘jeonse in multi-family and multi-household housing is risky’ rapidly spread, the supply in the non-apartment market shrank more severely than in the apartment market. With no one willing to move in under jeonse contracts, people who used to buy villas with jeonse disappeared from the market. Since these properties could not be sold even if built, construction companies found themselves unable to proceed with building. As a result, the completion of non-apartment housing in the first half of this year was only about 40% of the long-term average.

In this situation, the government announced a plan to significantly increase the purchase of newly built rental housing as part of expanding supply. Over the next two years, more than 110,000 units will be purchased mainly in the metropolitan area, and in Seoul, purchases will be made without limit until the supply of non-apartment housing normalizes. The purchase of newly built non-apartment housing is a very important short-term supply measure. While the creation of new towns or expansion of apartment supply takes at least three years, the supply of non-apartment housing can be realized within a year.

The biggest obstacle is the feasibility of this plan. Purchasing newly built non-apartment rental housing is not as easy as expected. Over the past five years since 2019, the Korea Land and Housing Corporation (LH) has supplied fewer than 100,000 purchased rental housing units, which is about 60% of the planned amount. On average, about 20,000 units were supplied annually. The highest supply was about 28,000 units in 2021. Therefore, supplying 110,000 units over two years is a very challenging goal.

However, it is not an impossible figure. We have achieved many challenging tasks, including the construction of 2 million housing units. If full efforts are made, this can be successful as well. Market responses are positive, with LH’s new purchase rental housing applications approaching nearly 100,000 units.

What support measures are needed to achieve this goal? As the government has stated, providing various tax incentives to reduce private sector cost burdens and supporting smooth financing through project financing (PF) guarantees are essential. In addition, expanding the workforce and strengthening the roles of public institutions such as LH are absolutely necessary. Since non-apartment housing varies in location and quality, executing this plan requires much more manpower and time than standardized apartments. Also, deep trust is needed for negotiations to proceed quickly and to save costs. Therefore, strengthening the role of public institutions to actively utilize their design and construction know-how accumulated so far is crucial.

If the expansion of purchased rental housing is implemented as planned by the government, it will play a significant role in stabilizing housing for low-income households and the overall housing market. Tenants of rental housing purchased by public institutions like LH will not have to worry about jeonse fraud, and the rent will be affordable, which is expected to reduce housing costs for low-income households and stabilize nearby rents. On the other hand, it may stimulate demand for purchases and cause instability in the non-apartment land market. Ultimately, the key is to achieve short-term supply effects while minimizing side effects through delicate and precise implementation plans. We hope that the government and public institutions will fully utilize their know-how and wisdom to make this policy a success.