[11·19 Jeonse Measures] "What About Apartment Supply? Will Conversion to Accommodation Facilities Help?" Answers [Q&A]

Archive photo / Photo by Mun Ho-nam munonam@

[Asia Economy Reporter Kim Yuri] The government will supply 114,100 public rental units over the next two years by utilizing multi-family housing, hotels, and other facilities to curb the spread of the jeonse (long-term lease) crisis. From next year, medium-sized public rental housing that middle-class households can also reside in will be created. The plan is to expand by 63,000 units by 2025 and then supply 20,000 units annually thereafter.

The Ministry of Land, Infrastructure and Transport, Ministry of Economy and Finance, and Seoul City announced the 'Support Plan for Housing Stability for Low-income and Middle-class' at the Government Seoul Office on the 19th, outlining these measures.

Below are the key Q&A points summarized by the Ministry of Land, Infrastructure and Transport.

▲ Due to the jeonse crisis, there is a shift to purchase demand, causing instability in the sales market again. What are the measures to stabilize the sales market?

=With the suspension period for the increase in capital gains tax rates ending in June next year and the comprehensive real estate tax assessment date (June 1) approaching, it is expected that the supply of properties for sale by multi-homeowners will increase in the first half of next year. The recently announced 'Household Debt Management Plan for Credit Loans, etc.' by the Financial Services Commission (applying a 40% debt service ratio (DSR) for high-income and high-credit loan borrowers, and recalling loans if a borrower with over 100 million KRW in credit loans purchases a house within one year) will reduce liquidity inflow into the market, contributing to stabilizing the sales market.

▲ You have claimed that supply has been abundant, so why is there suddenly a shortage of supply in 2021-2022?

=The move-in performance over the past three years (2017-2019) has been at an all-time high. This year's move-in volume also greatly exceeds the usual level. However, supply in 2021-2022 is expected to slightly decrease compared to the past decade (2010-2019) due to the non-designation of new housing sites. In response to the unstable jeonse market caused by ultra-low interest rates and a rapid increase in the number of households, additional short-term supply expansion measures have been prepared. Through this plan, supply exceeding the usual level is possible, and it is expected that the number of houses will be sufficient relative to the recent increase in households.

▲ What are the expected effects of this plan? When is the jeonse market expected to stabilize?

=This plan is expected to contribute to stabilizing the jeonse market by enabling supply above the usual level and securing a sufficient number of houses relative to the recent increase in households. Especially, once tenant recruitment begins from December 2020 under this plan, much of the anxiety is expected to be alleviated. As jeonse supply increases, a chain reaction of tenant movements will occur, increasing jeonse listings, and the changed transaction practices under the three lease laws will gradually settle.

▲ The plan does not include designating overheated areas such as Busan and Gimpo as regulated zones. Will they be designated soon? When?

=Procedures for designating regulated areas in some metropolitan cities and parts of the Seoul metropolitan area are currently underway. Once the Housing Policy Deliberation Committee (Jujeongshim) and other procedures are completed, the designation will be announced soon. The plan is to designate Busan's Haeundae, Suyeong, Dongnae, Yeonje, and Nam districts; Daegu's Suseong district; and Gimpo city in Gyeonggi Province (excluding Tongjin-eup, Wolgot-myeon, Haseong-myeon, and Daegot-myeon) as adjusted areas.

▲ The implementation of the three lease laws, including the right to request contract renewal, has caused the jeonse crisis. Is this a failed policy?

=We are well aware of the difficulties faced by citizens trying to find new jeonse housing recently and sincerely apologize for the market situation. However, it is difficult to conclude that the current market situation is solely due to the introduction of the three lease laws. While there may be some impact during the transitional phase of reduced new demand as tenants exercise their right to request contract renewal, the overall market situation must be evaluated considering the historically low interest rates, increased tenant demand due to household fragmentation, and demand shifts to higher-quality locations, all of which collectively increase jeonse demand. The establishment of the contract renewal right will extend tenants' secure residence periods and improve conditions for tenants to prepare for home ownership.

▲ The three lease laws have caused confusion in the jeonse and monthly rent markets. Are there plans to improve the system?

=It has only been three months since the system was implemented, so it is premature to discuss improvements. Positive effects such as increased residence periods for existing tenants due to the introduction of the right to request contract renewal and rent ceiling have been confirmed through various indicators.

▲ Is supplying 114,000 jeonse-type units in 2021-2022 a realistic figure?

=Vacant public rental units are existing houses being supplied. New construction purchase agreements and remodeling of vacant non-residential buildings are not new projects but are already underway by organizations such as Korea Land and Housing Corporation (LH) and Seoul Housing and Communities Corporation (SH), so the implementation system is in place. There are many waiting contractors for new construction purchase agreements, and remodeling vacant non-residential buildings, including various types beyond existing commercial and office spaces, is expected to secure sufficient volume.

▲ The supply volume in Seoul in the first half of next year is small. Does this mean there will be no immediate effect on stabilizing the jeonse market?

=In addition to supplying new housing, plans are underway to purchase houses currently under construction or planned and support low-interest loans to supply them as jeonse-type units. (Public jeonse housing in Seoul in the first half of next year: 500 units, new construction purchase agreements: 3,000 units) From December this year, 5,000 vacant public rental units will be supplied as jeonse-type housing, which is expected to increase short-term jeonse supply and help stabilize the market.

▲ Jeonse prices are rising mainly for apartments, but there are no supply expansion measures specifically for apartments.

=In 2021-2022, apartment completions are expected to temporarily decrease due to past non-designation of housing sites and reduced permits for redevelopment projects in 2016. Considering construction periods (2.5 to 3 years), it is difficult to rapidly increase apartment completions in the short term. Therefore, the plan is to disperse apartment jeonse demand by intensively supplying quality, larger-sized housing that can substitute apartments as jeonse-type units through expanded purchase agreements and public jeonse housing introduction.

▲ Many public rental units have been vacant for over three months. Has there been a problem with public rental operation and management?

=Efforts are being made to minimize long-term vacancies over six months through relaxed eligibility, facility improvements, and green remodeling. Although long-term vacancies over six months have been systematically managed to minimize them, considering the short-term supply-demand instability and the jeonse and monthly rent market situation, vacant units over three months are being utilized to supply as many houses as possible. With the integration of public rental housing types for existing houses, the previously separated supply standards by partitions will be unified, contributing to resolving supply-demand mismatches.

▲ Most vacant units are likely small, old, or in poor locations. Will there be demand if income and asset requirements are waived?

=It is estimated that there are about 7.89 million non-homeowning tenant households nationwide regardless of income and assets, so demand is considered sufficient. Due to the recent rapid increase in single-person households, demand for small housing is also expected.

▲ Will converting lodging facilities help with the current jeonse crisis?

=The recent increase in households is mainly among one- to two-person households, so converting lodging facilities is expected to help with the jeonse difficulties faced by small households. Lodging facilities are mainly located in urban centers with excellent locations and are similar to residential facilities, allowing for rapid supply.

▲ What are the targets for the remodeling project of vacant non-residential buildings?

=In addition to completed and operating commercial, office, and lodging facilities, buildings under construction can be converted to residential use through changes in use or design modifications. Buildings unsuitable for residential use, such as factories, are currently not being considered for purchase.

▲ Aren't deregulations such as the price ceiling system and excess burden on reconstruction the fundamental supply measures?

=The price ceiling system and excess burden on reconstruction are minimum regulations to prevent speculative demand caused by excessive profits from redevelopment projects. Support is being provided to facilitate redevelopment projects through public redevelopment and reconstruction with increased public contribution.

▲ What additional budget is required to supply high-quality lifelong housing?

=The additional fiscal cost for newly introducing medium-sized housing of 60-85㎡ (exclusive area) is about 11 billion KRW (about 5 billion KRW in equity investment) next year. As medium-sized housing supply gradually expands, about 730 billion KRW (about 360 billion KRW in equity investment) is expected to be required by 2025.

▲ Should the government supply rental housing to the middle class as well?

=The plan is not to supply rental housing exclusively for the middle class but to create complexes where various classes, including some middle-class households through raising income eligibility criteria, can live together.

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