Government 'All-in' on Jeonse Supply... "Only the Supply Entity Changes, It's Just Shuffling"

Purchase, Jeonse Lease, and Purchase Agreements
Vacant Commercial Spaces, Offices, and Factories Also Converted to 'Residential Use'
Only Thousands of Vacant Units... Preferred Apartments Account for Just 5%
Experts Say "Without Increasing Total Supply, Stabilizing Sales and Jeonse Prices Is Difficult"

[Asia Economy Reporters Inho Yoo and Sehee Jang] The government plans to announce a comprehensive jeonse (long-term lease) measure on the 18th to supply 100,000+α public rental housing units, but it remains uncertain whether this will resolve the jeonse crisis. The core of this measure involves the Korea Land and Housing Corporation (LH) purchasing vacant houses to rent out (purchase rental method) and leasing properties to tenants again as jeonse (jeonse rental method). The plan also includes remodeling commercial buildings, offices, and factories into residential units for supply. However, critics argue that since the supply entity merely changes to the government, the actual effect of increasing supply volume will be limited.

◆ Government 'all-in' on supply with purchase agreements and factory remodeling = As the jeonse crisis continues, related ministries such as the Ministry of Land, Infrastructure and Transport, Ministry of Economy and Finance, and Seoul Metropolitan Government have focused on maximizing supply volume. Given the severity of the jeonse shortage, they aim to increase the supply of rental housing and advance the supply schedule to meet jeonse demand.

Initially, the Ministry of Land proposed supplying several thousand units, but considering the demand far exceeds supply, they are reviewing additional supply methods. To significantly increase supply, the government decided to adopt the purchase agreement method for the first time, in addition to the previously considered purchase and jeonse rental housing methods. Purchase and jeonse rental housing refers to the government buying or leasing currently vacant houses and then offering them again as jeonse.

Unlike the existing method of purchasing completed houses, LH will conduct inspections at major construction stages through prior purchase agreements, which is expected to improve overall housing quality. Additionally, private developers benefit by resolving risks of unsold or unleased units and addressing financing issues during construction.

When supply was still insufficient through purchase rental, jeonse rental, and purchase agreement methods, the government even decided to convert factories into residential use for supply. The plan is to remodel apartment-style factories currently used as offices into residential units. Furthermore, private developers will convert vacant commercial spaces and offices into residential units for market supply. Developers participating in residential conversion projects will be exempted from parking lot expansion requirements. The government also plans to relax income criteria for medium-sized rental housing, considering expanding eligibility from 130% to 160% of the average monthly income.

◆ Supply limits in Seoul, limited incentive effect of 'parking lot expansion exemption' = The problem is that the government's public rental housing supply plan as a jeonse measure is disconnected from market conditions, making it difficult to achieve effectiveness. Currently, the number of vacant units that public enterprises like LH and Seoul Housing & Communities Corporation (SH) can purchase is only a few thousand, making it realistically difficult to secure volume. According to the Ministry of Land and Seoul City, as of the end of August, there are a total of 3,336 vacant houses in Seoul, including detached houses, row houses, multi-family houses, apartments, and multi-unit houses. Over 70% of these are detached houses, and apartments preferred by tenants account for only 5% of the total.

Ultimately, since places with excellent living conditions are unlikely to remain vacant, additional housing supply may be concentrated in areas with little actual demand. Professor Daedong Kwon of Myongji University’s Department of Real Estate said, "Purchasing vacant houses and putting them back on the market is just a stopgap measure. Unless the total supply volume increases, the sales and jeonse markets cannot stabilize." Professor Kyoeon Shim of Konkuk University’s Department of Real Estate added, "Since multi-family houses in Seoul cost several hundred million won, it is difficult to purchase and lease many units. Supply will inevitably focus on less desirable locations."

The conversion of commercial spaces, offices, and factories into housing faces uncertainties regarding private sector participation and numerous challenges. Professor Kwon said, "There are no tax benefits, and incentives like parking lot expansion exemptions are not very effective." Moreover, converting commercial spaces, offices, and factories into residential use requires structural changes such as electrical supply systems and emergency staircases. Additionally, critics point out that relaxing income criteria alone, while total supply remains fixed, will only increase competition.

Researcher Eunhyung Lee of the Korea Institute of Construction Policy said, "Under this government, measures have often unintentionally fueled housing and jeonse prices. This measure is unlikely to be effective, especially in the Seoul metropolitan area where the jeonse crisis is most severe, because securing a large volume of rental housing is difficult and budgets are limited."

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