[Opinion] A Country Without Housing Supply Targets

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When the Special Act on Reconstruction of First-Generation New Towns, a core real estate policy and presidential campaign pledge of the Yoon Suk-yeol administration, was passed last year as the ‘Old Planned City Act,’ the government initially announced that there were 51 land development areas larger than 1 million square meters. However, when the enforcement ordinance of the law was announced last month, the target areas increased to a total of 108 by including the adjacent and surrounding residential areas of the previously designated 51 urban areas.

The biggest advantage of the special zones included under the Old Planned City Act is, of course, the ‘floor area ratio (FAR) restriction.’ Despite the current upper limits under the National Land Planning Act being 300% for general residential type 3 and 500% for semi-residential zones, if included under the Old Planned City Act, these limits are relaxed to 150% of the national land law ceiling. This means that general residential type 3 zones can have a FAR of 300% × 1.5 = 450%, and semi-residential zones 500% × 1.5 = 750%. According to the Ministry of Land, Infrastructure and Transport, the total number of houses in the 108 areas is 2.15 million units, and there is talk that after the Old Planned City Act is fully implemented, housing supply could approach twice that level due to the high increase in FAR allowed by the special provisions.

However, it is necessary to examine whether such a level of housing supply in old urban areas will balance supply and demand in Korea’s future environment. In particular, the problem is that without the government’s basic plan on supply and demand being announced, it is impossible to judge whether the supply of these houses will be excessive or insufficient.

The government’s housing supply plan is made through mid- to long-term plans. The housing supply plan announced so far is the second supply-demand plan, which covered the period from 2013 to 2022, initially announced during the Park Geun-hye administration and revised under the Moon Jae-in administration.

The problem is that from last year through 2032 is the period for the third mid- to long-term housing supply-demand plan, but the current administration has yet to announce the supply plan for this period. This supply-demand plan has become important because Korea’s mid- to long-term housing market foundation, including population and household projections by Statistics Korea, faces the very significant issues of low birth rates and low growth. If structural demand contraction has occurred in the housing market, it is necessary to recognize this situation and supply housing accordingly to maintain balance, but the criteria for this are unknown.

With no plan announced for the next ten years, domestic construction companies are entrusting market forecasts to various consulting and major research institutions. Housing supply operators conducting projects domestically feel that the environment has changed and that they may need to reduce volumes, struggling to find their own basis for this. The fact that the housing supply-demand plan, which should have been announced by the end of last year at the latest, remains unpublished can also be interpreted as the government fundamentally neglecting its duties.

In this context, the announcement of the enforcement ordinance of the Old Planned City Act, which increased the target areas from 51 to 108 and boasted that the corresponding housing units total 2.15 million, raises concerns that it could open the door to oversupply in the domestic housing market. In countries like Japan, continuous housing permits were issued during the early 1990s when the economy began to stagnate, resulting in problems caused by vacancies.

Rather than flashy figures like FARs of 450% or 750%, it is time to focus on the basics and internally review whether current policies under Korea’s mid- to long-term housing supply-demand plan might trigger oversupply. Furthermore, by publicly announcing appropriate supply targets, private sector developers can utilize this information to establish management plans from land acquisition to permits, which form the foundation of housing supply.

Chae Sang-wook, CEO of Connected Ground

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