The Core of Supply is a 'Home You Want to Live In'... Market-Friendly Incentives Must Be Redesigned

Archive photo / Photo by Mun Ho-nam munonam@

[Asia Economy Reporter Yuri Kim] Regarding the Seoul metropolitan housing supply plan announced through the August 4th real estate measures, the policy direction to expand housing supply in Seoul is positive, but at this point, what is needed is not an expansion of rental housing supply but 'supply to support homeownership for the middle class,' according to critiques.

According to the Korea Research Institute for Construction Industry on the 17th, the rise in Seoul housing prices is centered on apartments sized 59㎡ and 84㎡, which correspond to 20 to 30 pyeong units. Over the past three years (July 2017 to July 2020), the price increase rate by apartment size in Seoul was highest in the 20 to 30 pyeong range (under 40~60㎡ at 15.2%, under 60~85㎡ at 14.9%) (data from Korea Appraisal Board).

This is analyzed by the Construction Industry Research Institute as demand for homeownership from the middle class. Researcher Huh Yoon-kyung of the institute said, "The proportion of apartment purchases by people in their 30s in Seoul increased from 25.3% in the first half of 2019 to 31.1% in the first half of 2020," adding, "The prominent apartment purchases by people in their 30s this year reflect anxiety that buying a home may become even more difficult in the future."

The institute pointed out that although the 300,000 housing units supply plan for the metropolitan area was announced in the September 13, 2018 measures, there was no effect on stabilizing Seoul housing prices. This is attributed to locational factors and the fact that half of the supply in the 3rd new town projects was planned as rental housing, resulting in weak supply signals to the private market.

Researcher Huh emphasized, "To quell market anxiety, it is necessary to accelerate projects on new sites and existing development areas that can guarantee definite supply volume and rapid supply speed, and also seek to expand infrastructure supply to reduce local opposition." Since opposition from local governments and residents is growing around some projects such as Taereung, infrastructure investments for regional improvements like transportation expansion should also be increased to resolve these issues.

There is also analysis that normalization of the redevelopment and reconstruction market is necessary. This is because over 70% of the Seoul apartments desired by the middle class have been supplied through redevelopment and reconstruction. In the past five years (2015?2019), 71.8% of newly completed apartments in Seoul were supplied via redevelopment and reconstruction. The institute stated, "While concerns about short-term price increases due to deregulation of redevelopment and reconstruction are understandable, policies should be designed from a longer-term perspective to reduce housing market volatility and secure market trust through stable supply."

Regarding public redevelopment projects, if one expects supply volumes exceeding those led by the private sector, it is necessary to provide incentives that match the preferences of project participants. Researcher Huh said, "Unlike public development, redevelopment projects are private ventures that require participation from private landowners and association members," adding, "It is necessary to offer economic incentives at a level that owners find satisfactory while also requiring that the degree of public intervention, types, and ratios of public housing be at levels acceptable to them."

In particular, in 'demand-preferred areas' such as Gangnam, the willingness and capability to promote projects are high, so rapid project progress is possible with just the 'normal administrative procedures.' Areas like Yeouido, also demand-preferred, recently saw suspension of routine administrative procedures such as designation of redevelopment zones and establishment of redevelopment plans due to concerns about 'housing market overheating.' The institute said, "Along with normal administrative procedures, combining administrative support like the recently operated 'Redevelopment Support Task Force (TF)' would enable even faster project progress," emphasizing, "Although the supply volume from deregulation is small at 5,000 units, considering long-term trends such as use conversion and convergence, this is the most important part. A flexible urban planning foundation should be established to respond to future spatial usage patterns."

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