"Turning Empty Stores into Homes" Making a Comeback? LH Research Institute: "10,000 Units Could Be Supplied in 5 Years" [Real Estate AtoZ]

Potential for Supplying 4,600 Units in Seoul and 10,000 Nationwide Over Five Years
Structural and Regulatory Barriers Remain... Spotlight on the New York Model

The "Non-Residential Remodeling Rental Housing Project," which was effectively halted during the Yoon Suk-yeol administration, is now likely to be relaunched after four years. The Land and Housing Research Institute (LHRI), under Korea Land & Housing Corporation (LH), recently issued an official recommendation in a report stating that "LH should resume the project." According to LHRI, as office and retail vacancies have increased in urban centers since the COVID-19 pandemic, converting these spaces into residential facilities could help alleviate the housing supply shortage. This aligns with the current administration's policy of expanding "public housing" (public sales + public rental housing), raising attention as to whether Korea will be able to supply housing by converting non-residential properties, as seen in New York City.

Potential to Supply 4,600 Units in Seoul and 10,000 Units Nationwide Over Five Years

'Anam Life' in Anam-dong, Seongbuk-gu, reborn from a tourist hotel into youth rental housing. Ibuki homepage.

According to LHRI on September 3, the institute published a report titled "Trends and Implementation Conditions of the Non-Residential Remodeling Project" on September 1. The report noted, "Major cities worldwide, including those in the United States and Europe, are seeing a decline in office demand and a growing trend of converting non-residential properties in urban areas for new uses." It continued, "While considering the conversion of underutilized commercial real estate into much-needed residential space, it is necessary to separate office facilities and retail spaces and set priority targets for each period." The analysis suggests that utilizing vacant non-residential properties could contribute to housing supply in a situation where new housing supply is delayed.

According to the report, LH estimates that it could supply about 10,000 new rental housing units nationwide over the next five years. In Seoul, the estimate is that approximately 4,600 units could be supplied by remodeling accommodations (1,740 units), office facilities (2,440 units), retail spaces (190 units), and facilities for vulnerable groups (230 units), primarily within about 250 meters of subway stations. The estimate for Gyeonggi and Incheon is 3,220 units, and for regional metropolitan cities, 2,300 units. These figures are based on a variety of spatial data, including those from Korea Real Estate Board, V-WORLD, Rail Portal, and Seoul Open Data Plaza.

Obstacles from Structural Changes and Regulations... Spotlight on New York's Example

The non-residential remodeling project was introduced under the Moon Jae-in administration as part of the "February 4 Measures" in 2020, with a goal of supplying 41,000 units by this year. LH generated high expectations by piloting 1,291 units at 10 sites, including Seoul, between 2020 and 2021. "Anam Life," a rental housing project in Seongbuk-gu, Seoul, which the National Policy Planning Committee visited in July, is a representative example. It involved converting an aging tourist hotel into youth rental housing.

However, since 2022, no new project sites have been identified. LHRI cited several reasons for this: increased construction costs and timelines due to structural changes such as installing floor heating and bathrooms; the complexity of obtaining consent from existing sectional owners and tenants; concerns about reduced residential performance due to housing construction standards; and unclear responsibility for defects during the remodeling process. The lack of institutional support has been pointed out as a reason for reduced business viability.

In response, the report recommended that Korea should continue to pursue the non-residential remodeling project, citing examples from major cities overseas. The report emphasized the need to establish an institutional foundation for the project. After the pandemic, New York City saw office vacancy rates in Manhattan soar to around 20% and introduced the "Office-to-Residential" conversion program. By offering private developers tax incentives, increased floor area ratios, and expedited permits, the city encouraged remodeling, resulting in the supply of 28,500 units to date. The city aims to supply an additional 70,700 units by 2030. The "25 Water Street" project, which is converting an outdated office building in Manhattan’s Financial District into an apartment complex with 1,320 units, is a representative case.

'Anam Life' in Anam-dong, Seongbuk-gu, reborn from a tourist hotel into youth rental housing. Ibuki homepage.

Especially since the current administration is focused on significantly increasing public housing, this project is likely to gain momentum. According to next year's budget proposal from the Ministry of Land, Infrastructure and Transport, the budget for public housing projects has been set at 22.8 trillion won, an increase of about 6.3 trillion won from the previous year.

An LH official stated, "This project can contribute to expanding supply and revitalizing urban centers, but there are significant practical constraints, such as the costs of structural changes and uncertainties regarding legal responsibilities. Institutional support at the government level must be provided to secure momentum for implementation." An official from the Ministry of Land, Infrastructure and Transport commented, "We are considering all ideas related to rental housing supply, and the non-residential remodeling project is also under thorough review."