"Promise to Supply 2.5 Million Households Begins in Downtown Seoul"

Yoon's Real Estate Policy Expert Suggestions
Increase Supply in Seoul to See Visible Effects
Revise the 분상제 to Eradicate 'Lotto Cheongyak'
Short-term Price Rise Expected with Development and Supply
Consistent Supply Ultimately Lowers Housing Prices

Photo by Yonhap News

[Asia Economy Reporters Minyoung Kim, Taemin Ryu, Seoyul Hwang] The Yoon Seok-yeol administration’s plan to supply 2.5 million housing units will be unveiled for the first time since its launch on the 10th. The new government’s real estate policy, which will be put to the test in earnest and determine the market direction in the second half of the year, is expected to focus on supply in the ‘Seoul city center.’ Experts argue that to increase policy predictability and effectively stabilize the real estate market, supply should be increased more in the Seoul city center rather than the outskirts of the metropolitan area. They also emphasized the need to pursue supply measures with a long-term perspective rather than focusing on short-term housing price movements during the deregulation process. The common consensus is that the government must show both specific supply measures and the will to implement policies to build market trust.

President-elect Yoon promised to supply a total of 2.5 million housing units over his five-year term. Of these, 2 million units will be led by the private sector, and 500,000 units by the public sector. In Seoul, an additional 400,000 new housing units will be supplied, and a total of 1.3 to 1.5 million units will be provided across the entire metropolitan area, including the first-generation new towns (Bundang, Ilsan, Jungdong, Pyeongchon, Sanbon).

By category, the supply plan includes ▲1.42 million units on public land ▲470,000 units through reconstruction and redevelopment ▲200,000 units via mixed-use development in city centers and station areas ▲180,000 units through mixed-use development of national/public land and vehicle depots ▲100,000 units from small-scale maintenance projects ▲and 130,000 units from other sources.

Among the 500,000 public sector units, housing products aimed at enhancing public interest were also revealed. The ‘Youth Cost-Price Housing’ and the public sale housing ‘First Home Near Station’ are cost-price houses, which are housing units under 84㎡ of exclusive area sold at cost price, with the condition that residents live there for more than five years and then sell back to the state, guaranteeing over 70% of the capital gains. These public housing units prioritize young people without homes, with a goal to supply 60,000 units annually, totaling 300,000 units. Additionally, 200,000 units of ‘First Home Near Station’ housing will be supplied by developing national/public land near station areas for public sale.

Increasing Supply in Seoul City Center Maximizes Supply Effect

Experts point out that the law of supply and demand has not been properly applied so far. Jo Joohyun, Honorary Professor of the Department of Real Estate at Konkuk University, said, “No matter how many houses are built, it is useless if they are built where there is no demand. Even within the metropolitan area, supply must be increased in the central areas of Seoul to see the effect of supply.” Baek Seongjun, Professor of Real Estate at Hansung University, added, “For demand to be sustainable, supply should be increased in station areas and city centers like Seoul rather than the outskirts of the metropolitan area or first-generation new towns, considering the proximity of residence and workplace. To this end, if the floor area ratio around station areas is raised to 400-500% and infrastructure such as parking lots and roads is expanded, the city can be developed in a three-dimensional way.” Kim Deokrye, Director of Housing Policy Research at the Korea Research Institute for Human Settlements, also said, “It is more desirable to supply housing in Seoul, where jobs exist, rather than in Gyeonggi or Incheon, where commuting times to Seoul are long.”

In summary, for the 740,000 units supplied in the metropolitan area to have an effective supply effect, these units should be supplied near station areas with guaranteed connectivity to Seoul rather than the outskirts of the metropolitan area, and preferably, supply in Seoul should be increased. However, in Seoul, since development in the central areas is already complete, it is not easy to find new sites. This is why President-elect Yoon allocated 470,000 units to reconstruction and redevelopment. Professor Jo said, “For private-led supply, since good locations have already been developed, the speed of supply through reconstruction and redevelopment is ultimately important.”

There are also calls to partially inherit the current government’s policies while securing new sites by lifting the Greenbelt where necessary. Director Kim emphasized, “The 2.4 Plan is a new business model for housing supply in the Seoul city center, so rather than completely discarding it, necessary models should be inherited or problematic parts supplemented. If areas that have lost their function as Greenbelt are lifted, the difficulty of securing new sites can also be resolved.”

“To Prevent Speculation, New Construction Prices Must Be Raised”

Advice was also given that to prevent the supplied units from turning into speculative tools, the government should set prices for new constructions considering market prices so that the profit margin is not too large. Lee Hyuncheol, Director of the Apartment Cycle Research Institute, said, “If new constructions are supplied at low prices, expectations for capital gains increase, demand overflows, and all supply units are sold. By adjusting the price ceiling system or increasing the realization rate to raise the prices of new construction supply, unsold units will increase, demand will decrease, and prices will stabilize.” He added, “In Seoul, the sale price is key. If the sale price of new towns in the metropolitan area is set too low, there is a high risk of reigniting the real estate fever.”

In particular, it was pointed out that short-term housing price increases during the supply development process must be tolerated. Lee Eunhyung, Research Fellow at the Korea Institute of Construction Policy, said, “When underdeveloped areas are newly renovated, a corresponding increase in value is inevitable. Rather, the bigger problem is accumulating maintenance project volumes without doing anything due to concerns about housing price increases.” Professor Baek also said, “If housing prices do not rise too sharply, short-term increases must be expected. If supply continues steadily, housing prices will eventually decrease.”

There were also calls for the government to show a firm commitment to the real estate roadmap. Recently, the Presidential Transition Committee’s wavering stance on deregulation and the pace of promotion of first-generation new towns caused market confusion. Park Wongap, Senior Real Estate Specialist at KB Kookmin Bank, said, “Concrete implementation plans such as site preparation and securing funds must be presented to send a clear signal to homebuyers who are undecided. A specific roadmap should be announced after President-elect Yoon’s inauguration.”

Director Kim said, “The biggest problem now is the lack of targets or standards for supply. It is important to set a housing supply rate or supply the number of houses that meet it.” According to Statistics Korea’s ‘Early 2021 Housing Supply Rate,’ the rate exceeded 100% at 103.6%. The housing supply rate has been rising annually, but last year, the number of households without homes surpassed 9 million for the first time. This underscores the need for tailored supply for households urgently seeking to own homes.

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