[11·19 Jeonse Measures] Ministry of Land, Infrastructure and Transport: "Reduce Apartment Demand by Supplying Quality Non-Apartment Housing" [Q&A]

[Asia Economy Reporter Lee Chun-hee] The government announced a housing stability plan that involves converting currently vacant monthly rental housing into jeonse (long-term lease) housing and remodeling vacant commercial spaces or hotels to supply 114,000 jeonse units by 2022. However, criticism has arisen that the supply of apartments, which the market actually desires, is relatively small, and that the regions and types of supply expected are misaligned with market demand.

Hong Nam-ki, Deputy Prime Minister and Minister of Economy and Finance, chaired the "10th Real Estate Market Inspection Meeting" at the Seoul Government Complex in Gwanghwamun on the morning of the 19th, stating, "We will supply 114,000 rental housing units nationwide over the next two years, including 70,000 units in the metropolitan area and 35,000 units in Seoul." The related rental housing will be supplied through net increase methods that raise the total stock, such as purchase agreements, newly built purchase rentals, and public jeonse-type housing.

The 114,000 units proposed by the government consist of ▲ utilizing public rental housing vacant for more than three months (39,100 units) ▲ public jeonse housing (18,000 units) ▲ newly built purchase agreements (44,000 units) ▲ remodeling of vacant non-residential spaces such as commercial buildings, offices, and hotels (13,000 units). The focus of this policy is to supply a large number of housing units in a short period. By the first half of next year, 49,000 units nationwide and 24,000 units in the metropolitan area will be supplied.

Kim Young-han, Director of Housing Policy at the Ministry of Land, Infrastructure and Transport, explained, "We recognize that there is insufficient demand for apartments in the private sector, but apartments have physical limitations for short-term supply expansion. The policy is designed to quickly supply high-quality non-apartment housing that meets apartment standards in jeonse or full jeonse form to reduce demand pressure on the apartment market." Regarding concerns about 'lottery jeonse' due to prices lower than market rates, he said, "Since it is about 90% of market price, calling it a 'lottery' is excessive. Please understand it as a somewhat discounted supply."

Kim Young-han, Director of Housing Policy at the Ministry of Land, Infrastructure and Transport, is conducting a back briefing on the November 19th Jeonse measures at the Government Sejong Complex on the morning of the 19th. (Photo by Lee Chun-hee)

The following is a Q&A with Director Kim.

- How will the funding for this measure be supplied?

▲ Funding will be supported using existing housing funds. Especially, the newly introduced public jeonse rental system operates in conjunction with tenant deposits, so the actual funding requirement is not expected to be large. Overall, it is designed within the available fund resources.

- Housing quality is a key point in private supply. The market currently desires apartment jeonse; how well does this demand match the current policy?

▲ We acknowledge the lack of apartment demand in the private sector. Due to low interest rates, there has been significant upward residential mobility, causing a concentration of demand for apartment jeonse. Looking at household numbers, three-person households are decreasing while one- to two-person households are rapidly increasing. Previously, one- to two-person households mostly lived in non-apartments, but under low interest rates, there is a trend to prefer apartment jeonse over officetels, multi-family houses, and one-room units, which are mainly supplied as monthly rentals.

However, apartments have physical limits for short-term supply expansion. Therefore, we aim to quickly supply high-quality non-apartment housing that meets apartment standards. By supplying them as jeonse or full jeonse, we intend to absorb existing non-apartment monthly rental demand and reduce demand pressure on the apartment market. This is the design direction of the policy.

- Among the units supplied under this policy, how many will actually be apartments?

▲ Construction-type rental housing within the public rental vacancy utilization jeonse housing supply and some purchase rental housing fall under this category. Public jeonse housing will mainly be built as multi-family units on single-family lots in urban areas. The same applies to newly built purchase agreement rental housing. Remodeling of vacant non-residential spaces will not be converted into apartments.

- Public jeonse housing has been newly introduced; how does it differ from the existing newly built purchase agreement rental housing?

▲ Public jeonse housing is newly introduced in this policy, but its basic method is the same as newly built purchase agreement rental housing. When LH or others present design standards, private construction companies build housing accordingly under agreements. After completion, these are acquired and operated as rental housing. Both fall under the broad category of purchase rental housing.

However, newly built purchase agreement rental housing requires income and asset verification, and only those who meet these criteria can move in. Public jeonse housing, on the other hand, does not consider income or asset requirements and is supplied by lottery to any non-homeowner. The residence period is 4+2 years, up to 6 years. Also, newly built purchase agreement rental housing is a continuous system, but public jeonse housing is a temporary program operating until 2022 to address urgent issues. The three main differences are move-in requirements, residence period, and program operation period.

Exterior view of the youth customized purchase rental housing in Sangdo 4-dong, Dongjak-gu

- Why is public jeonse housing operated temporarily? Also, with a purchase price of 600 million KRW per household, the quality is expected to be good; why is it supplied through the private sector rather than directly by LH or other public entities?

▲ The purpose of the housing fund is primarily to ensure housing stability for low-income or vulnerable groups. Under this principle, this program urgently responds to the current jeonse issue. With 600 million KRW per household, as you mentioned, high-quality rental housing will be supplied. After operating for six years, if LH or others face financial difficulties requiring fund recovery, they may sell to recover funds; otherwise, it can continue to be used as public rental assets.

Purchasing after private construction is to utilize various available sites such as private single-family lots. Also, using private construction companies to build and then acquiring the units allows faster supply in a shorter period than LH directly compensating and building.

- How does the supply of public jeonse housing differ from utilizing vacant public rental housing?

▲ Public rental housing is supplied to low-income groups based on income and asset requirements. However, due to location, internal conditions, and monthly rent issues, mismatches occur in supply and demand, resulting in long-term vacancies targeted by this policy. Some of the supply includes apartments and is not necessarily small or in poor residential environments. Strict income and asset requirements cause mismatches, so this policy excludes those requirements and supplies units in jeonse form. If the housing condition is poor, sufficient repairs will be made before occupancy. Since there is no difference in move-in qualifications, non-homeowners wishing to move in can choose based on location and other factors.

- Since public rental housing is supplied at low jeonse prices, concerns about 'lottery jeonse' may arise. What is your view on this?

▲ Since high-quality new housing is supplied at prices lower than market rates, many will prefer and compete for them. However, since the price is about 90% of market value, calling it a 'lottery' is excessive. Please understand it as a somewhat discounted supply.

- You mentioned advancing the move-in time for 19,000 public housing units. Recently, issues like COVID-19, fine dust, and monsoon rains have delayed construction. Are there specific plans to expedite completion?

▲ For construction-type public rental housing, considering current construction progress, 10,000 units that can be completed early without difficulty have been selected. For purchase rental housing, shortening the period for income and asset verification and minor repairs like wallpapering is planned, so the schedule reduction is not unreasonable.

- Regarding remodeling of vacant non-residential spaces, can factories be included? Also, there is a parking expansion exemption; are there concerns about parking shortages?

▲ Factory buildings are considered inappropriate for housing use due to location and residential requirements and have not been reviewed so far. If parking expansion regulations are exempted for rental housing, tenant eligibility will be limited to those without cars. Therefore, significant concerns are not expected.

Sincheon-dong Miseong Clover and Jinju Apartment Reconstruction Complex as seen from Lotte World Tower Seoul Sky in Songpa-gu. / Photo by Mun Ho-nam munonam@

- You mentioned adjusting the relocation timing of redevelopment projects to control demand. Does this mean the government can forcibly delay reconstruction citing market conditions?

▲ Adjusting relocation timing in redevelopment projects has been used in past jeonse measures to prevent localized jeonse shortages caused by many housing units being demolished in a short period in specific areas. This is not done without basis; under Seoul's urban maintenance ordinance, if multiple complexes undergo redevelopment simultaneously in one building, there is authority to adjust timing for supply-demand stability. However, whether redevelopment volumes concentrate enough to require timing adjustments will depend on future progress. Redevelopment is a way to quickly supply housing in urban areas and involves residents' interests, so we will carefully consult while monitoring market conditions.

- There are ongoing criticisms that the criteria for designating regulated areas are quantitatively too loose, leading to suspicions that the Ministry of Land, Infrastructure and Transport arbitrarily designates areas. Are there plans to improve this?

▲ Currently, regulated areas are designated after qualitative review of regions meeting quantitative criteria. There may be concerns that loose quantitative criteria exclude areas with rapidly rising housing prices. However, we must consider market conditions, surrounding environment, inconveniences caused by designation, and long-term housing price trends comprehensively, so we have no plans to revise the criteria. The Residential Policy Deliberation Committee related to this designation began procedures yesterday. Since deliberations are ongoing, it is difficult to specify a completion date, but we will finalize and disclose the decision as soon as possible.

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