Hike in housing demand driven by rapid urbanization

A Seoul Metropolitan housing policy as part of Korea's policies for metropolitan areas focused on housing supply due to population growth before the implementation of local government system back in 1995. While the population in Seoul soared from 2.45 million in 1960 to 5.43m, 8.36m and 10.61m in 1970, 1980, and 1990 respectively, housing shortage continued quite long with the housing supply falling far short of its growth.

Such housing shortage caused by continuous economic development and urbanization created the regular cycle of real estate price boom and its speculation. It was one of the government's priorities to deal with particularly during its hyper-development period causing price surge, speculation and its regulation, which eventually resulted in the endless circle of housing supply and price control policies. The country's diffusion ratio of house (total number of houses / total number of households) reached 100% in the early 2000s but that of Seoul, almost 100% in 2010.

Policy arrangement for residential land and housing

The Korean government's housing policy aimed at emergency relief till the mid 1950s but started being closely related to a construction one according to a five-year economic development plan in 1961. To aggressively tackle the shortage issue, Korea National Housing Corporation and Housing & Commercial Bank were established in 1962 and 1967 respectively. Also Land Compartmentalization and Rearrangement Projects Act was enacted for a planned urban development in 1966 and an institutional framework was in place to supply more affordable housing the mid 1970s.

 
Execution of land readjustment projects

The number of land readjustment projects remarkably increased to develop new cities as the demand for public spaces for housing, industries, and transportations was strengthened due to the first 5-year economic development plan. The projects were mainly about creating a planned urban district around the outskirts of existing cities. They were most actively conveyed in Seoul in the 1960s and 1970s and covered 40% of the country's cities. Yet, it was not effective with a lot of detached housing areas. Some regions like Yeongdong offered affordable municipal housing but there was a limit as land owners were usually able to control how it was used.

<Table 1> Periodic statistics of land readjustment projects	<Chart 3> Periodic distribution of land readjustment projects in Seoul
1960s 1970s 1980s number of regions 20 14 5 total size of the regions 63,673,800㎡ 49,650,100㎡ 14,541,300㎡ average size of the regions 3,183,700㎡ 3,546,400㎡ 2,908,300㎡ average rate of areal 31.6% 43.7% 55.0%
Reference: Seoul Metropolitan Government, Seoul Institute, 2009	Reference: Seoul Metropolitan Government, Seoul Institute, 2009

Mass housing construction via public development

<Table 2> Outcome of housing site development project (end of 2006)	<Chart 4> District of housing site development project in Seoul
total Korea Land Corporation Korea National Housing Corporation local governments nationwide 639,674 (100.00) 344,313 (53.83) 171,325 (26.78) 124,036 (19.39) metropolitan areas 336,123 (100.00) 190,042 (56.54) 88,199 (26.24) 57,882 (17.22) Seoul 37,106 (100.00) 6,438 (17.35) 7,378 (19.88) 23,290 (62.77)
Reference: Seoul Metropolitan Government, Seoul Institute, 2009	Reference: Seoul Metropolitan Government, Seoul Institute, 2009

Redeveloping substandard housing since 1980

Lack of housing in the early industrialization led to lots of unlicensed shacks which sprang up in Seoul. The town with the shacks was called 'Moon Village' as concentrated around the mountains and hills of cities. Its redevelopment project kicked off in 1976 when Urban Redevelopment Act was enacted.

 
Beginning of joint redevelopment project

A joint redevelopment project started from the early 1980s to promote a housing one. Residents' associations and private construction companies jointly carried out the project. House or land owners did not have to pay more to get a new house but the absence of appropriate measures for tenants sparked their backlash. The project contributed to the disposal of 140,000 deteriorated houses and building of about 290,000 new ones till 2008. The substandard houses where low-income families resided accordingly turned into high-rise apartments for the middle class. Lack of low price hosuing caused by redevelopment triggered multi-family housing construction at the end of 1980s when housing price skyrocketed.

<Table 3> Hosing improvement projects in Seoul (unit: dwellings)

Reference: Seoul Metropolitan Government, Jan. 2012

<Chart 6> District of house improvement project in Seoul

<Chart 7> Heukseok-dong

<Chart 8> Oksu-dong

<Chart 9> Oksu-dong

Supply of redeveloped rental housing for tenants

The joint redevelopment project tearing down a lot of houses with no plan was under lots of criticism causing housing anxiety to those with low income who had no choice but to being forced to even more deteriorated places. To resolve that, the Seoul Metropolitan Government adopted the system of redeveloped rental housing for tenants. Yet, it covered only 20% of the demand compelling most tenants to move. Until now, the total number of the rental housing provided by the project amounted to 56,500.

 
Adopting a residential environment improvement project for low income families

A residential environment improvement project aims at upgrading dwelling surroundings of old, deteriorated housing in cities. To reduce the side effects caused by low income groups' enforced move the Seoul government has started undertaking this project for urban conservation and rehabilitation avoiding a large-scale entire demolition since 2012. While the public sector works for infrastructure such as road, parking lot, square, and community centers including day care and senior citizen centers, residents participate in improving a house and its surroundings. It currently applies to 23 regions in Seoul.

Providing more public rental housing

The supply of public rental housing in Seoul started with the permanent one for the lowest income bracket in 1988. While various kinds of public one like permanent, redeveloped, etc. have been constructed for low income families so far, long-term (20 years or more) public one accounted for 6.1% only among all houses as of 2013. That is because it is not easy to meet the needs of land and construction cost. The Seoul government's current goal is to have up to 10 % public one.

Public rental housing has three kinds according to income levels; first, permanent and purchased one for the lowest income, second, national and redeveloped for the low income who earn less than 70% of the average, and last, SHift (long-term deposit base housing) for the middle income with up to 180% of the average.

 
Type 1: permanent and purchased rental housing for the lowest income

A permanent rental housing policy along with the plan of supplying 2 million houses was the first housing welfare policy for the destitute including recipients of livelihood protection program. It was groundbreaking providing 85% of construction cost from for the national finance. Still, it came to an end due to such big burden after building 190,000 houses countrywide including 47,000 in Seoul. Since 2003 a purchased rental housing policy, instead of permanent, has been implemented by buying multi-household houses in cities to use as public one for the lowest income. Their location has improved residents' satisfaction and since 2005 a system of lease on deposit and rent has also been used by renting a private house to lease it again to tenants by the government.

 
Type 2: public rental housing for the low income earning less than 70% of the average

Public rental housing showed up as a follow-up program of permanent one but lack of government support led to its short supply. It has provided in earnest since the Asia financial crisis in 1998 when housing price fluctuated, which caused its need for the low income's security. 50-year public, national, and redeveloped ones are included in public rental housing. Redeveloped one was continuously provided to those enforced to move in 1990s and national in 2000s. Act on Special Measures for National Rental Housing, etc. has assisted its supply including the plan of constructing 1 million in 2003.

 
Type 3: SHift, expanding its qualification to the middle income

In 2008 the Seoul Metropolitan Government adopted a system of SHift to which the middle income were qualified to apply. SHift different from a monthly rent-based public one requires a deposit worth about half of housing price grabbing the attention of the middle income who are able to afford it.

Providing rent to the low income

The supply of public rental housing does not meet the demand despite its continuous provision. The programs of deposit loan and monthly rent assistance have been implemented for the low income not residing in a public one. 146,000 low income households and 174,000 working families were annually benefitted by the deposit loan system supported by national housing fund from 2002 to 2009.

The Seoul government has independently conducted a rental assistance program to provide a monthly rent for the low income since 2002. Those subject to the housing expense aid as the disadvantaged group earning less than 150% of the minimum cost of living are selected every year. It is from the social welfare fund raised by the Seoul government on its own supporting 233,000 households from 2002 to 2010. The number of its recipients has increased year by year since 2010 and a national-level housing voucher program plans to be carried out from 2015. The rental assistance program has been regarded as effectively resolving the blind spots of relevant policies and meeting various demands for housing welfare by utilizing a lot more private rental housing.

<Table 5> Number of households supported a monthly rent by the Seoul government

Establishment of Minimum Residential Standards

Regulation for stable housing market

Housing construction started to play an important role in stimulating the economy as its influence on the economy has gotten bigger with its larger size. Housing policies have accordingly had two goals of residential and economic stability, which has led to the repetition of regulation and deregulation in the housing market.

A speculation control policy to prevent the fluctuation of housing price has contributed a lot to the foundation of the housing market. Various control policies have been introduced during real estate price surge; for example, revising a transfer income tax in 1978, differential pricing of pre-construction real estate in 1982, implementing a bond bidding system in 1983, adopting an integrated land tax system in 1985, enacting three acts of the public concept of land ownership in 1989, real-name property ownership in 1995, strengthening reconstruction standards in 2002, comprehensive real estate holding tax and increasing LTV (loan to value ratio) for a speculative zone in 2003, requiring to report the actual acquisition price of real estate in 2005, price cap for pre-construction real estate in speculative zone in 2007, etc. Many of those policies are currently used for fairness and efficiency in the housing market.

 
Organizations for mass supply of housing

Collaboration of the economic and land development departments of the central government and the Seoul Metropolitan Government

National-level political resolution and support is required for the mass supply of housing. It was pursued as part of 5-year economic development plan and in 1970 a 10-year housing construction plan and a plan of supplying 2 million houses were separately set up. Also Housing Construction Promotion Act and Housing Site Development Promotion Act were established for the legal foundation to get a land at a low price and National Housing Fund for financing. Housing policies as a key one of the central government were carried out by all relevant players such as the Economic Planning Board, the Ministry of Construction and the Seoul Metropolitan Government.

 
Founding LH and SH corporations for affordable housing

Public Housing Act enacted in 1963 defined public housing as an affordable housing provided to local governments and non-homeowners. Korea National Housing Corporation has constructed about 2 million houses till 2008 from its foundation in 1962 among which a house for installment sale and short-term rental housing took up 63% and long-term (20-years or longer) 37%. The Seoul Metropolitan Government established SH corporation for its own rental housing projects in 1989. SH corporation, since its foundation, has built 155,000 rental houses and 88,000 houses for installment sale and conducted various projects including Eunpyeong New Town and Magok district development. LH and SH corporations have contributed a lot to public residential stability during the country's rapid economic growth period by developing and supplying lands, providing affordable housing, and constructing public rental housing for the low income.

 
Raising policy fund
Establishing National Housing Fund

National Housing Fund is the main pillar of the country's public housing finance. It was founded under Housing Construction Promotion Act in 1981. Before this, housing construction was push ahead with housing bonds issued by housing fund but it failed due to lack of resources. The Fund is raised from government contribution, issuing national housing bonds and housing lottery tickets, deposit money and national housing fund bond of the general financial market, and housing subscription deposit. The contribution of such resources differs according to market condition; for example, in the case of housing bond, its proportion was much bigger in 2005 when the housing market was booming than in 2010 when housing subscription deposit played a greater role.

The Fund is used in various ways; construction of rental housing and houses for installment sale, support of housing purchase and lease loan, improvement of old, deteriorated housing, land development, etc. About 4.5 million houses were built with the Fund so far among which public rental housing and small-sized houses for installment sale took up 48.2% and 51.8% respectively.

<Table 7> Resources of National Housing Fund

Housing price surge caused by large-scale land development and infrastructure construction

A public land development project obtained two significant outcomes; supply of affordable land and creation of planned city. A lot of lands were able to be provided for the short term by using private lands for public development under the Housing Site Development Promotion Act. Yet, a large-scale land development project caused the social conflicts related to the resistance and compensation of those forced to move. Also the project usually conducted around the outskirts of cities led to the price surge of land and housing resulting from urban expansion and increasing infrastructure construction costs. While it has achieved two goals of housing supply and infrastructure building by investing its development profits in infrastructure, it has the structural limit of higher housing price followed by higher cost for land compensation and development.

 
Chronic traffic congestion between Seoul and new towns due to urban expansion and bed town

The chronic traffic congestion between Seoul and new towns caused the controversy over self sufficient city. Most new towns constructed for the mass supply of housing sooner than later have served as a bed town. Yet, the paradigm of new town development has recently changed into having both functions of living and working residence; in the cases of Pangyo and Gwanggyo, there is an area for business in them.

 
Reduction in owner-occupation

Owner-occupation rate has decreased despite income growth and the mass supply of housing. It dropped from 71.7% in 1970 to 56% in 2005 nationwide and for Seoul to about 40% in 2005. That is because housing price is much higher than income level and apartments constructed a lot are not affordable.

<Chart 10> Homeownership rate

Reference: Statistics Korea, National Population and Housing Census (1970~2005)

Debt increase of public rental housing provider

The debt of a public housing enterprise soared due to public rental housing which earned positive evaluation. That showed that the policy for public residential stability would inevitably be a big burden on the government.

 
Reduction of cheap houses thanks to a housing redevelopment project

Since the early 1980s when a joint redevelopment project started, 140,000 substandard houses have been torn down and 290,000 new homes have been constructed countrywide till 2008. Despite such achievements, it still needs to resolve the issues like a forced demolition and the low resettlement rate of original residents. The country's economic development has helped many of those living in unlicensed residence get out of poverty and become middle class but widened the income gap between rich and poor, which implies the importance of appropriate housing measures for the low income.

 
Lack of supply of permanent rental housing for the lowest income

The rental fee of permanent rental housing, public one for the lowest income is just 20% of the market level. The fact that 660,000 households nationwide including 20,000 in Seoul are on the waiting list to move in permanent one shows that its demand is significant. The households up to the 4th income quintile are eligible for public rental housing but in fact, those in the 1st and 2nd quintile hardly afford its rent. Also, it needs to manage permanent one in line with public one not to make the low income feel marginalized. It is expected to address issues like lack of permanent one and policies under the Act on the Support for Improving the Quality of Lives of Tenants in Long-term Public Rental Housing recently enacted to support a different amount of rent according to income level by the government.

 
From detached house to apartment

Large-scale land development and a policy of mass supply significantly affects housing type. As a lot of apartments were built in Gangnam and new towns, it started being preferred to a detached house. Apartments accounted for 70 to 80% of newly built houses taking up 53.0% of all the houses in 2005 from mere 0.8% in 1970. Yet, its higher purchase value and rent is a heavy burden comparing with that of multi-household detach houses or multi-family row houses.

<Chart 11> Number of houses by type 1970~2011

Reference: Statistics Korea, National Population and Housing Census (1926-2011); Seoul Institute, 'Geographical Atlas of Seoul'

Achieving 100% of housing supply ratio

For a while, Korea's housing policy aimed at homeownership via the mass supply of housing believing that economic development and income increase would continue to maintain the demand for housing. The policy's goal was accordingly resolving a housing issue by making the public have their own house for the last 4 decades. The Korean government, therefore, focused on providing affordable housing unlike the United States and Europe which encourage to get home via financial and tax support. Affordable land and housing thanks to a land development project made 100% of housing supply ratio almost possible countrywide in the early 2000s. Yet, in the case of Seoul where a quarter of the country's population reside, 100% was achieved in 2010.

 
Supplying more public rental housing

The system of permanent, 50-year public, and national rental housing where long-term stay is likely at low rental rates is a milestone of a housing welfare policy. The Seoul Metropolitan Government has made strenuous efforts for public rental housing. In particular, it is remarkable to provide 56,000 houses by making the supply of a certain number of public one mandatory in private sector-led redevelopment and reconstruction projects. Seoul accordingly has 210,000 public houses accounting for 6.1% among all the houses as of 2013. Recently to resolve the issue of lack of land small sized private lands are also used where one-room type rental housing, cooperative type public one, and quasai public one through the remodelling of private housing are supplied.

<Table 8> Proportion of long-term (20 year or longer) public rental housing to the total houses

Into the policy of community-centered new town and redevelopment

Korea's housing policy has focused on encouraging to have their own home helped by economic development and income increase. A land development project started in the early 1980s aimed at supplying a lot of affordable lands by developing the low priced green belt at the outskirts of cities. It has contributed to increasing homeownership and the middle class by providing a lot more affordable housing. Yet, since the Asian financial crisis when the financial market of the housing one opened, the growth of mortgage lending has made housing price surge rapidly. Such high value comparing with income level led to just 40% of Seoul's homeownership rate despite the mass supply of housing.

A large-scale land development project has been conducted in a way that housing price bears the cost of infrastructure such as road, park, water and sewage services, etc. The expectation that the housing value currently lower than the market rate would be on the rise has served as a catalyst to maintain the high demand for new houses but it is not certain whether such model boosted by economic and income growth is able to apply to other developing countries. That is because such a big project without the boosting factors would be just a means of supplying housing to the high income group.

While the public sector has been a main player for a large-scale housing supply project, the private sector has played a larger role in an urban redevelopment project. The result was that the residence of the low income turned into that of the middle income and original residents were forced to move to basement or cheap house, which meant that an entire demolition gave the low income no choice but to move. Also, as a large-scale development project reduces the number of low priced houses giving the bigger burden of housing expenses on the low income, the public sector needs to invest in infrastructure and community facilities as well as improve residential environment. As in Seoul where the deteriorated housing in a so called Moon Village served as the foundation which reduced housing expenses helping become the middle class, it needs to be kept in mind that the residential areas of the low income in a city is actually a valuable asset.

Korea has invented and applied its own policies and development methods during a rapid economic development period. Institutions established in government ministries have aggressively participated in the process as an important player. Trained experts have contributed a lot to reducing policies' side effects and developing and adopting new policies through field study, data analysis, and simulation. The countries which seek development need to come up with the measures suitable for their own societies rather than just copying those of Korea as each has different economic, social and cultural backgrounds. To this end, they also need to put efforts on building experience for development through specialized studies.

Korean statistical information service (http://www.kosis.kr/)
Real estate statistics of KB Kookmin Bank (http://land.kbstar.com/)
MOLIT statistics system (http://stat.mltm.go.kr/)
Seoul Institute, 「Geographical Atlas of Seoul」, 2013
Seoul Metropolitan Government, 「2020 Seoul Master Plan」, Seoul Development Institute, 2006
Seoul Metropolitan Government, 「Analysis and evaluation on the Seoul Metropolitan Government's large-scale development project」, Seoul Development Institute, 2009