Breakdown of top candidates' real estate policy pledges

Economy

Published: 20 Feb. 2022, 16:26

Breakdown of top candidates' real estate policy pledges

A scene of Seoul's apartment complexes is seen from the Lotte World Tower in southern Seoul on Feb. 13. Presidential candidates have been rolling out real estate policies as housing prices have skyrocketed by 46 percent in Seoul and 30.6 percent nationwide since the Moon Jae-in administration first took office. [NEWS1]

Cheaper, faster, more — concerns arise that pledges made by the two leading candidates of Korea’s upcoming presidential election, promising to stabilize real estate prices by supplying affordable housing in a short amount of time, may backfire and lead prices to soar due to heightened buyer sentiments.

Real estate has certainly been one of the most heated subjects in recent years.

Housing prices have skyrocketed by 46 percent in Seoul and 30.6 percent nationwide since the Moon Jae-in administration first took office.

That’s the highest increase in prices for the country’s capital city and the second highest increase across Korea, according to KB Koomin Bank, since data first started being collected in 1986.

While rising prices place the burden on wishful homebuyers, increasing tax rates take a toll on multiple-home owners trying to maintain their assets. The disparity between regions worsens, making it difficult for people from all walks of life.

As the housing shortage has been blamed as the No. 1 aggregator of the current ailment, both leading candidates — the ruling Democratic Party's Lee Jae-myung and the main opposition People Power Party’s Yoon Suk-yeol — have announced aggressive plans to supply residential real estate and bring down housing prices.

Among the 10 main pledges the candidates submitted to the National Election Commission, items related to real estate is No. 4 on Lee’s list and No. 3 on Yoon’s.

The pledges can be summarized as “supplying 3.11 million housing units to bring down prices” by Lee, and “supplying more than 2.5 million units to meet demand” by Yoon.

More houses, same difference

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Both candidates agree that more housing units must be supplied in order to lower prices. Their pledges echo each other on a greater level — cheaper, faster and more — but details differ in their plan for execution.

Having vowed last year to build 2.5 million units, Lee recently added 610,000 more to his agenda. Yoon also said he will “consider developing more public land if needed.”

Most housing units are set to be built in the greater Seoul region, which includes Seoul, Incheon and Gyeonggi.

Lee aims to supply 2.58 million units in the greater Seoul region and of those, 1.07 million units in Seoul. That’s 34 percent of the promised 3.11 million lot in Seoul and 83 percent in greater Seoul.

Yoon’s numbers at set for 1.3 million to 1.5 million units in the greater Seoul area, with 500,000 units in Seoul — 20 percent of the planned sum in Seoul and 52 to 60 percent in greater Seoul.

Both candidates are straying away from techniques used by past administrations, which have typically allotted only around half of new housing supplies to the greater Seoul region, including 10 percent in Seoul. The Moon government supplied 53 percent of its new housing in the greater Seoul area, including 14 percent in Seoul.

The reason both candidates are eyeing the capital region is because housing shortage is worse around Seoul compared to rural areas.

As of 2020, the housing to household index, which describes whether there are enough existing houses for the current number of households, was 94.9 percent in Seoul and 98 percent in the greater Seoul region. That’s lower than the 108.9 percent clocked in by the country's rural areas and also below 105 percent, a marker to indicate a stable housing supply.

Candidates are rolling up their sleeves, looking to use both traditional methods — such as reconstruction and redeveloping public land — and new ideas — like bringing subway stations currently above ground below the surface — to execute their plans.

Lee and Yoon stated they will expand the floor area index to 500 percent from the current 300 percent. This will allow 70 percent more houses to be built in the capital region where large lots of public land aren’t readily available.

Both candidates are similarly eyeing the new towns that were developed during the early 1990s, such as Bundang and Ilsan in Gyeonggi. They promised to put forward revisions to the current construction law to allow new towns to be remodeled with the expanded 500 percent floor area index.

Reconstructions projects by the private sector will also be made easier. Lee and Yoon said they will streamline the reconstruction plan screening process, such as those for safety inspections.

Lowering prices for the youth

Democratic Party's presidential candidate Lee Jae-myung explains his real estate pledges at the Press Center in central Seoul on Jan. 6 [JOINT PRESS CORPS]

People Power Party's (PPP) presidential candidate Yoon Suk-yeol announces his real estate pledges at the PPP headquarters in Yeouido, western Seoul on Aug. 29. [NEWS1]

Another common item on the candidates' agendas is lowering the price of state-built housing.

Lee plans to lower the price of public apartments by introducing a price cap determined by the construction fee.

Currently, price caps are calculated by the price of the land and the construction cost. Lee's plan aims to prevent rising real estate numbers from being reflected in the apartments’ values and greatly cut their cost.

For instance, the price of one public apartment complex in Gwacheon, Gyeonggi, was set at 24 million won ($20,000) per 3.3 square meters last year. But that can shrink to 13 million won if only the construction cost is taken into account.

Price caps will be put on more private apartments. Only a small number of these private apartments have price caps in the status quo.

Yoon's plan is to supply 300,000 units that will be sold at the construction cost level. Of these, 200,000 units will be located in the greater Seoul area.

Potential buyers that benefit the most will be those in their 20s and 30s.

Lee will allot 30 percent of the newly-built houses to this age group. The 100,000 new units, to be built in Yongsan Park in central Seoul, will be entirely dedicated to that demographic.

Yoon will supply 300,000 units for the youth across the country, with 200,000 units going in the greater Seoul area. Another 200,000 units for first-time house buyers will be supplied near public transportation hubs, of which 140,000 will be in greater Seoul.

Although the target numbers of 2.5 million and 3.11 million houses are high, they aren't completely unrealistic.

During the last five years of the current administration, 2.61 million units have been supplied — that’s the highest since 2005.

The Kim Young-sam administration also approved supplying 3.1 million housing units between 1993 and 1997. The Park Geun-hye government would have likely hit similar numbers, had she filled her five-year tenure.

However, uncertainty remains on how many units they can actually construct during their term. Both candidates’ plans are based on the number of approvals given to construction or the land lot, not the number of constructions that actually get completed.

Developing public land also comes with budget issues. If sales of public apartments are made at the lowered cost of construction fees, it decreases the revenue that comes from the projects. This could lead to financial deficits for public housing plans.

Another risk factor lies in whether the private sector will be as willing to take part, as the two candidates are hoping for. Reconstruction takes place under private organizations such as unions, the willingness of which neither Lee nor Yoon can control. Around half of the candidates’ planned housing units need to be constructed by the private sector.

Even if the construction plan gets approved and land is secured, some projects will inevitably shut down along the way. From 2005 to 2021, 8.91 million units were approved for construction, but only 7.29 million units — or 82 percent — were actually completed.

Higher hope, higher risk

A real estate agent's window is filled with houses that have been put up for sale in Seoul, Feb. 16. [NEWS1]

Despite what may be Lee and Yoon's best intentions to lower housing prices, their pledges, in actuality, could ironically heat up the real estate market and raise prices further.

In order for an increased supply to have a cooling effect on prices, demand must stay the same. If more supply leads to even more demand, the plan will effectively fail. And in the real estate market, nothing spells hope for potential buyers more than redevelopment.

For instance, when a redevelopment plan is initiated, it also raises anticipation that the surrounding neighborhood will also rise in value. Streamlining the safety inspection process for apartments 30 years or older means there’s a higher chance for them to be approved for redevelopment.

Fierce investor sentiment could also lead some to buy the units for short-term profit.

BY AHN JANG-WON, YOON SO-YEON [yoon.soyeon@joongang.co.kr]