Housing supply policy must start with what buyers want

Kim Sei-yong

The author is the director of the Urban Research Institute at Korea University.

The government has rolled out yet another housing supply package. Counting only the major measures announced over the past year, the package from Thursday is the third. Compared to previous administrations that offered few housing supply measures or waited until later in their term, the Lee Jae Myung government may appear diligent. But the frequency of such measures also shows how serious the housing market has become.

Each package may have been carefully prepared, but none has yet proved particularly effective.

The latest measures largely follow the same formula. Add specific housing supply, shorten approval procedures, ease regulations and accelerate construction — all of which governments have offered before.

There are some promising elements. Converting oversize, unsold commercial plots in new towns into residential land makes sense. But the government should have specified the scale of eligible sites and noted clear conversion standards. Plans to combine housing with schools or government buildings may also end up as pilot projects, as many of the designated sites require school closures or relocation of public offices.

As with earlier measures, the package raises doubts about whether it can actually be implemented.

Successive governments have assumed that suppressing demand through aggressive tax changes, then rapidly supplying large volumes of housing or announcing plans to do so, would stabilize home prices in the Seoul metropolitan area. We know how that turned out.

For housing policy to work, policymakers must first understand what prospective residents actually want. Only then can projects gain public acceptance and move quickly.

Start with demographics. Single- and two-person households surpassed half of all households a decade ago and now account for more than 70 percent. But apartment complexes are still designed according to laws written when five-person households were common.

Under the Building Act and Housing Act, apartments typically require playgrounds and landscaped space at their center, with building coverage ratios rarely exceeding 20 percent. Even single-person households that seldom cook at home must have relatively large kitchens. Applying outdated rules prevents efficient use of land and buildings.

New York is actively converting offices into housing to reduce vacancies and increase supply. If laws are adjusted flexibly to reflect social changes and consumer demand, more homes can be created, and land used more efficiently. Korea cannot keep saying that there is no land for housing while relying on regulations written 60 years ago.

Since last year, the government has also sought to secure housing by rebuilding public office complexes. This is a good idea, but current rules effectively require such mixed-use public complexes to be developed as rental housing. Projects will stall if residents fear that nearby rental units will reduce property values. A mix combining rental and for-sale housing could offer an alternative.

People in their 20s and 30s care greatly about location. They want to live close to workplaces and schools, which means redevelopment of public facilities near subway stations.

As people enter their 30s and 40s, the demand for homeownership naturally rises. Once they have children, many want the stability of remaining in one place. That is why Korea needs more equity-sharing housing, in which buyers pay perhaps 20 percent of the price initially and acquire additional ownership stakes over time.

It is encouraging that the Aug. 13 package points in that direction, but follow-up measures must come quickly and at scale.

People in their 50s and 60s often want to generate income from homes that they already own while aging in the neighborhoods where they have lived. Pension-linked housing programs should therefore be improved.

Housing needs inevitably differ by stage of life, but government policy has rarely adequately reflected those differences. The result is demand concentrated in a handful of areas.

Young buyers in their 30s and 40s have often been accused of “panic buying.” Too often, however, the bigger problem has been “panic policy.”

At this point, efficiency is the key to expanding housing supply, and efficiency must come from innovation. Policies driven by institutional inertia will continue to stall. It is time for a much more fundamental change in thinking across Korea’s entire housing system.