[In-Depth Look] How to Realize 'Affordable Housing'

Jin Mi-yoon, Research Fellow at Korea Land and Housing Corporation (LH) Land and Housing Research Institute

The 'affordability issue,' a new housing crisis that emerged globally after the global financial crisis, is no longer new. It has become a widespread crisis. Even working hard, it is too difficult to afford house prices and rents. The bigger problem is that this situation is not just a phase in the economic cycle but is structurally entrenched. Not only low-income groups but also the middle class are being pushed out of cities, commuting from farther away and paying more for transportation. Quality of life declines, and the competitiveness of cities inevitably weakens.

So, what is the solution to making housing affordable? First, it is to supply a large number of affordable homes. Since July 2018, the UK has mandated that 10% of homes supplied by construction companies be affordable housing. The sale prices and rents of affordable housing, which include both for-sale and rental homes, are set at about 80% of the surrounding market prices. The London city government has introduced Discounted Sale Housing (DSH), offering greater discounts to lower-income individuals.

New rental housing for the middle class is also being developed. This is because their income is somewhat too high to qualify for public rental housing but still makes it difficult to find quality affordable housing in the private market. Sweden, known as a public housing haven, has started supplying 15-year rental housing for the middle class and is expanding the 'Kombohus' public housing innovation program, which shortens construction periods and reduces construction costs by 25% to accelerate occupancy. In countries like Australia, the United States, and Canada, private developers are incentivized through a density bonus system, requiring them to supply affordable housing for 5-30% of total units in exchange for increased floor area ratios.

Rent control is also expanding as a next-generation measure to ease housing burdens. Since January 2020, Berlin, Germany, has implemented a policy freezing rents for private rental housing at 9.8 euros per square meter for five years. Paris, France, has enforced rent control across all districts since July 2019. London introduced a living rent set at about 30% of monthly income in 2018, guaranteeing a minimum five-year lease period, and Spain extended lease period guarantees to five years as well.

Although there are differences among countries, these various attempts stem from the recognition that traditional methods can no longer control the high-burden housing market and that the affordability crisis is still in its early stages.

We are not currently living in an era of absolute housing shortage. Instead, we face a relative deficiency?the lack of affordable housing. Expanding supply is the solution, but what kind of housing should be supplied must become a more important policy agenda. Housing solutions addressing income polarization are also necessary. The supply of affordable housing for the middle class, attempted by many countries, aims to revive the 'missing middle.' This term, coined by Daniel Parolek in 2010, originally referred to the disappearance of mid-rise housing between low-rise single-family homes and high-rise apartments but also signifies the decline of the middle class and the absence of housing options in the middle segment.

Korean-style affordable housing can be said to be public sale and public rental housing. Compared to the continuous growth of public rental housing, for-sale housing is dominated by high-priced private homes with no 'middle' segment. Although public sale housing is being supplied as part of the Newlywed Hope Town, it is far from sufficient to play the role of an affordable middle option. Going forward, policy interest is needed on how to supply more affordable housing with more options, and the soon-to-be-implemented rent ceiling system is also expected to play a role in realizing affordable rental burdens.

Jin Mi-yoon, Research Fellow, Land and Housing Institute, Korea Land and Housing Corporation (LH)

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