[In-Depth Review] Reasons to Anticipate Middle-Class Rental Housing Policies

"Senior, I can't find a house in Seoul."

This is what a junior lawyer preparing for marriage recently told me. She disliked moving every two years with jeonse or monthly rent, and looked for areas near Seocho-dong, where her office is located, for an easy commute. However, she said it was difficult to live there because she couldn't get enough loans. Depending on housing prices or lending institutions, the conclusion might have been different, but it seems things did not go as she wished.

Housing prices in major metropolitan areas such as Seoul have risen significantly in recent years despite the government's strong regulatory intentions. On December 16 last year, the government announced a strong real estate policy to control housing prices in the Seoul metropolitan area, including Seoul and Gyeonggi Province. The application areas for the price ceiling system on pre-sale prices were greatly expanded. Mortgage loans for apartments priced over 1.5 billion KRW were completely banned, and the LTV standards for mortgage loans on housing priced over 900 million KRW were also tightened. In the housing market, some believe these strong policies help stabilize real estate prices, while others argue they hinder young people from owning homes. Opinions are divided, but this article is not about that. Rather, it is about the fact that it is difficult to stabilize the real estate asset market with demand-suppressing policies alone, and supply policies must also be properly aligned for success.

Looking at the country as a whole, the housing supply rate has exceeded 100%, and in recent years, the number of permits issued annually ranges from 550,000 to 760,000 units, with supply plans of 370,000 units per year, continuously supplying or planning to supply housing. Nevertheless, half of the households in Korea are without homes. Even if certain restrictions are placed during pre-sale to allocate housing to the homeless, multi-homeowners generally repurchase these through transactions, causing housing prices to rise. One-homeowners become homeless again, limiting the contribution of housing supply to residential stability. The government's housing supply policy focusing on pre-sale is a major cause of this.

In September last year, Gyeonggi Urban Corporation announced a new plan to build rental housing for the middle class. They plan to pilot supply 549 units with exclusive areas of 60 to 85 square meters on the former court and prosecutor's office site in Suwon Gwanggyo New Town, with 20% of these units specially allocated to youth, newlyweds, and the elderly. The deposit and monthly rent will be about 90% of the surrounding market price, and they plan to provide services such as meals, cleaning, and care at cost for long-term residence of over 20 years without conversion to sale. The deposit and rent increase rate will also be capped at 2% per year. Anyone in a homeless household can apply regardless of income or asset level. In short, they intend to provide rental housing of better quality than pre-sale housing without conversion to sale. I think this is a very good direction and sincerely hope this policy succeeds.

Previous rental housing policies were generally considered targeted at low-income and vulnerable groups, resulting in poor perception. Due to low preference for rental housing, ambiguous policies like sale-conversion rental housing emerged, causing confusion about rental housing. In fact, middle-class rental housing supply policies promoted by past governments, such as corporate-type private rental housing (New Stay) or long-term jeonse housing (Shift), seem undesirable or unsustainable because they excessively channel development profits to the private sector and incur losses during the rental period.

Instead of the middle class living on their own income buying homes with debt, housing that can be rented at affordable prices must continue to be supplied. If the middle class can make this choice, the direction of the housing market, which is focused on asset accumulation, can be changed. To this end, it must be pursued from a different perspective than rental housing supply for low-income and vulnerable groups. If such rental housing is continuously supplied, people will make rational choices and achieve a proper balance between sale and rent, leading to housing price stability. This also aligns with the principle of universal housing rights, ensuring that everyone in the country can enjoy housing suited to their circumstances. This is why I sincerely hope the middle-class rental housing policy succeeds.

Baek Juseon, Attorney at Law, Law Firm Yungpyeong

This content was produced with the assistance of AI translation services.