Housing Starts Halved This Year... "Supply Measures Should Include Bridge Loans and Private Sector Activation"

Announcement of measures expected around the 20th-25th
Financial support and easing of non-financial regulations to be combined
Measures to address the contraction of private supply orders must be included

As concerns grow that housing supply may be insufficient in the next 2 to 3 years, the government has announced plans to unveil countermeasures before Chuseok. The prevailing expectation is that these measures will accelerate public and private housing supply by combining financial support with the easing of non-financial regulations. However, considering domestic and international factors such as real estate project financing (PF) defaults, rising material costs, and the Korea Land and Housing Corporation (LH) rebar omission issue, there are concerns that expanding housing supply solely through government will may not be easy. There are calls for specific plans that can minimize side effects and ensure effectiveness, as premature measures could exacerbate market instability.

[Image source=Yonhap News]

According to the Ministry of Land, Infrastructure and Transport (MOLIT) and others on the 8th, the government plans to announce real estate supply measures around the 20th to 25th of this month. This is because leading indicators related to supply, which can gauge housing supply 2 to 3 years ahead, are sharply declining, raising concerns about supply shortages. According to MOLIT housing statistics, the nationwide housing permit performance from January to July this year was 207,278 units, a 29.9% decrease compared to the same period last year (295,855 units). The situation is even more severe for housing starts. As of July, the cumulative nationwide housing start performance was 102,299 units, a 54.1% plunge compared to the same period last year (223,082 units). The housing supply issue is becoming a reality, and the anxiety caused by these concerns may trigger house price increases, which appears to have prompted the government to prepare countermeasures.

The upcoming measures are expected to include support for housing supply financing, which has contracted, through extensions of real estate PF maturities. Additionally, revisions to the Enforcement Decree of the Land Development Promotion Act (Taekchok Act) are being considered to allow the resale of apartment sites for multi-family housing construction. Other measures under discussion include easing non-residential regulations, expanding incentives for construction companies, and adjusting construction costs to reflect reality. Easing regulations on non-residential housing such as officetels, detached houses, multi-family houses, and residential lodging facilities can increase market supply without building new houses. However, MOLIT has drawn a line on issues such as exemption from capital gains tax on unsold houses in local areas, consideration of increased public housing construction costs, and the purchase of unsold houses using REITs, stating that nothing has been finalized yet.

Attention is also focused on whether measures to increase private supply, such as easing the capital gains tax on multiple home ownership (Jaechohwan) and abolishing the mandatory residence requirement, will be included. The Jaechohwan easing amendment bill proposed by the ruling party last year has failed to pass the parliamentary bill review subcommittee for a year due to opposition from the opposition party.

However, some argue that even if these measures are introduced, it will be difficult to fundamentally resolve the supply problem. The recent supply shortage is attributed to the contraction of private supply entities’ willingness to secure orders due to increased financial costs from interest rate hikes, rising labor costs, real estate PF defaults, and the spread of unsold houses.

Yeokyunghee, Senior Researcher at Real Estate R114, said, "It is too early to discuss the effects of the supply measures that have not yet been announced, but considering that the recent enthusiasm for subscription can positively influence suppliers’ project promotion, the pace can be accelerated depending on the level of the supply measures," adding, "Measures to alleviate the psychological contraction of supply entities must accompany this."

There are also opinions that considering the individual circumstances of supply entities and preparing specific plans can enhance the effectiveness of the measures. This is due to concerns that merely sounding alarms about housing supply shortages without properly implementing effective measures could worsen market instability.

Professor Seo Jin-hyung of Gyeongin Women’s University (co-representative of the Fair Housing Forum) said, "If the government acknowledges the supply shortage but fails to present effective measures, it could only fuel market instability," adding, "Since the public sector accounts for 20% of supply, the measures should include content such as encouraging the extension of bridge loans to induce private supply entities to secure orders."

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