Gov't scrambles to increase housing supply amid looming shortage

New apartments are under construction in Gwangju in this Nov. 30, 2022, file photo. Yonhap

By Ko Dong-hwan

The government appears to be scrambling to come up with measures for increasing the housing supply as concerns are growing that the nation may face a shortage of homes within a few years due to a drop in the number of housing projects amid high interest rates and rising construction costs, according to industry officials, Tuesday.

To pave the way for introducing more apartments and other residential buildings while keeping local real estate prices from skyrocketing, the Ministry of Land, Infrastructure and Transport said it will unveil a plan before the Chuseok holiday, which starts on Sept. 28.

Land Minister Won Hee-ryong said Monday the ministry “should be the most responsible” for the country's real estate market and he will focus mainly on preventing a possible housing supply shortage before finalizing and announcing the new plan.

The minister said the new plan isn't to spur housing demand in the present market. Revising laws on real estate property taxes takes too long to come into effect and introducing new incentives for property buyers carries high risks of side effects, he said. The minister said if the plan's new measures stir demand to encourage housing purchases, it will excessively heat up investment or speculation and worsen the market.

Instead, he said he will zero in on supply. He said what he wants to do is “to unclog and pump the blood circulation” in the domestic housing supply by working jointly with financial authorities, local governments and the Ministry of the Interior and Safety. He also hinted he is considering launching new financial supports by extending deadlines for government financing of new housing projects.

With the new plan, the country's currently hardened housing supply chain should start relaxing by December or no later than March, according to the minister.

Land, Infrastructure and Transport Minister Won Hee-ryong, left, speaks during a Presidential Commission on Architecture Policy meeting at the commission's headquarters in Seoul, Monday. Yonhap

The new housing supply plan comes as observers have been warning of a new housing supply shortage crisis in two to three years. They indicated the country's high interest rates and the rise in construction costs due to price hikes in building materials and labor wages as the main reasons behind the dropping number of government-approved housing projects. Nonetheless, apartment applications are heating up to a worrisome level, which the government sees might lead to an apartment price hike.

This prompted President Yoon Suk Yeol on Sept. 2 to declare that a new housing supply plan will be unveiled within this month. Three days later, the land ministry followed up with its latest housing plan announcement. This fast pace shows the government is scrambling to assuage the public concerns over real estate market instability.

Based on past remarks from the minister and the current market situation, experts said the plan will likely take an uncompromising, non-negotiable course on controlling non-financial housing supply elements such as land and government approvals. More aggressive governmental financing on and mitigation of regulations on government approval for new housing projects are also expected.

The new plan is also anticipated to allow housing developers to return previously purchased state-owned land without penalties and further mitigate regulations for non-apartment housing like officetels, which can be used for businesses or residences and offer a supply of affordable, smaller housing. Another key measure anticipated from the plan is assuring local housing developers their investments in the local real estate market are always guaranteed to be profitable.

Moon Yoon-sang, a researcher at the Korea Development Institute, echoed the minister's view, saying that the current problem is with supply, not demand. He said the current supply chain will collapse as soon as early 2025.

“The government's project financing on housing is problematic and many uncertainties ― like rising costs ― are deterring local housing developers from starting projects,” Moon told The Korea Times. “The government had unspooled its funds too much during the COVID-19 era allowing project financing to spike thanks to the low interest rate. Now, interest rates are way too high and it is difficult for project financing to recover.”