Claiming to Control Housing Prices... Restricting Development and Mismatched Supply

Government Accelerates Housing Supply Expansion with 300,000 Units in Capital Area and 40,000 in Seoul

However, Mostly Small and Rental Units... Medium-Sized Supply Needed for Market Stability
Stricter Redevelopment Regulations Also Cause Anxiety... Seoul's Actual Supply to Halve Next Year
Excessive Regulations Must Be Eased to Increase Supply

▲ Public support private rental housing tenant recruitment announcement for youth housing near the station in Seogyo-dong, Mapo-gu, Seoul. Although the housing is intended for newlyweds, only those without vehicles are eligible to move in. (Provided by SH Corporation)

[Asia Economy Reporter Lee Chun-hee] Although the government is driving efforts to expand housing supply, there are ongoing criticisms that these measures are insufficient to stabilize housing prices. Plans are underway to fully supply 300,000 housing units in the metropolitan area as early as this year, but the supply is concentrated on small-sized and rental housing rather than the middle-class housing that is driving price increases. Moreover, there are criticisms that tightening regulations on redevelopment and reconstruction projects, which are key sources of housing supply in Seoul, are actually fueling the rise in housing prices.

According to the Ministry of Land, Infrastructure and Transport (MOLIT) and industry sources on the 4th, MOLIT announced in a presidential briefing on the 27th of last month that it plans to accelerate the supply process for 300,000 housing units in the metropolitan area and also expedite the early supply of 40,000 units in downtown Seoul. The ministry is emphasizing continuous expansion of supply.

However, the industry believes that this volume does not properly reflect market conditions. Looking at the supply plan, the policy focus is on housing for single-person or newlywed households of one to two people. Seoul City also appears to be concentrating on supplying transit-oriented youth housing for young people, university students, and newlyweds. In particular, the public-supported private rental housing aimed at revitalizing private sector rental supply imposes overly strict eligibility criteria for transit-oriented youth housing, such as requiring no vehicle ownership, which has been criticized for not considering the demand from middle-class people in their 30s.

Ham Young-jin, head of the Zigbang Big Data Lab, pointed out that while the supply focused on small and rental housing is appropriate from a residential welfare perspective, its effect on market stabilization is questionable. Ham said, "As multi-person households are decreasing and one- to two-person households are increasing, there is clearly a need to supply small housing through public rental or public-supported private rental housing," but added, "Ultimately, to stabilize the market, there must be supply of medium-sized apartments with exclusive areas of 60 to 84 square meters targeting middle-class or multi-person households."

Experts also view the expansion of public rental housing as challenging. Shim Kyo-eon, professor of real estate at Konkuk University, said, "Although there is talk of increasing public rental housing, proper supply is not happening due to the burden of project costs," and argued, "To resolve supply and demand issues in the rental sector, private rental businesses must be normalized." He added, "After all, multi-homeowners are also private rental business operators," and said, "It is contradictory to impose high-intensity regulations while expecting a large volume of supply to enter the market."

There are also concerns that the government and Seoul City’s tightening of regulations on redevelopment and reconstruction projects is stirring market anxiety.

Seoul Mayor Park Won-soon responded in January to a question about criticisms that suppressing redevelopment and reconstruction in Seoul is causing housing prices to skyrocket, stating, "We have not neglected supply and have consistently pursued policies to increase volume, so the current problem does not stem from supply." According to statistics presented by Seoul City, the average annual supply of apartments in Seoul between 2014 and 2019 was about 36,000 units. Seoul’s position is that there is no shortage of supply as an average of 49,000 housing units will be supplied annually over the six years from this year to 2025.

The industry’s analysis is completely different. According to Zigbang on the 4th, the number of apartment move-ins in Seoul, which had maintained a level of about 40,000 units with 41,893 units last year and 40,840 units this year, will be halved starting next year. The number of units scheduled for move-in next year is 22,404, dropping further to 12,866 units in 2022. Considering that redevelopment projects in Seoul continue to be delayed due to government regulations, this figure is likely to be even lower.

Professor Shim commented, "The planned supply volume is actually small," and pointed out, "While supply is possible through the 3rd New Towns or land development in the metropolitan area, Seoul has no land unless the greenbelt is lifted, so excessive regulatory easing on reconstruction and redevelopment is essential."

However, there are also claims that supply issues and real estate market stabilization are separate matters. Choi Eun-young, director of the Korea Urban Research Institute, said, "The instability in Seoul’s housing market is due to speculative excess demand, not supply," and questioned, "Recent declines in Seoul housing prices should be due to supply expansion, but supply has not actually increased, has it?"

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