1. Objective: Article 1, the SMG Ordinance on the Establishment & Operation of SH Corporation

2. Scope of Work

3. History

4. Capital: KRW 5 trillion / Paid-in Capital: KRW 4,736 billion (Cash: KRW 2,993.1 billion; In-kind: KRW 1,742.9 billion)

As an institution responsible for conducting public projects that affect the general lifestyle of Seoul’s residents, SH Corporation has been engaged in building housing, managing lease housing, readjusting residential environments, and supplying the necessary infrastructure through the use of public funds and profits generated by land development and housing sales. The role of SH Corporation is to act as a central body that contributes to residential stability and supplies housing to Seoul’s residents, and to pursue urban restoration and development.

Residential Stability & Housing Supply

Founded to enhance the residential welfare of Seoul residents, as of late 2013, Seoul Housing Corporation had carried out land development projects across an area of 16.9 km² (twice the size of Yeouido spanning 38 districts including Suseo, Daechi, and Gayang) and supplied housing to 244,000 households (approximately 6.9% of all houses in Seoul). The Corporation’s housing projects include both construction and redevelopment, and reconstruction after purchase. The modes of supply are diverse, in accordance with the prevailing socioeconomic circumstances and policies.

The Corporation also supplies and manages lease housing in a bid to resolve housing issues for low-income families; and, as of the end of 2014, the Corporation was managing 160,000 units of lease housing. In view of its plans for future supply, this number is expected to reach 297,000 within four years.

<Figure 1> Magok Urban Development / <Figure 2> Naegok Bogeumjari Housing / <Figure 3> Shinnae 3 National Public Housing / <Figure 4> Shinjeong SHIFT

The Main Agent of Urban Restoration

Public participation in urban restoration has become more important than ever, in terms of achieving balanced development and improving existing residential environments that are declining due to the recent urban expansion focused more on new cities and new built-up areas. SH Corporation carries out various programs designed to improve the residential environment, urban environment, urban facilities, and apartment-type factories with the ultimate aim of breathing new vitality into the city, restoring urban communities, and recovering and transforming urban functions.

Provider of Residential Welfare

SH Corporation has undertaken a wide range of social contribution activities and provided residential welfare services to the most vulnerable members of society to help improve their quality of life, rather than focusing on the number of housing units supplied. As a major provider of residential welfare, the Corporation has reorganized and strengthened the functions of regional integrated management centers, making an enterprise-wide effort to provide more specialized services.

<Figure 9> SH Academy / <Figure 10> Free Medical Services, Eutteumi Volunteer Group / <Figure 11> Peace of Mind Call Service / <Figure 12> Group Weddings

Background to the Foundation of SH Corporation

<Figure 13> New Town Redevelopment

Since the mid-1960s, the central government has undertaken the development of apartment complexes to supply housing. In the first economic development plan, housing construction was treated as a part of the economic plan. Various institutional measures were introduced for the plan, based on the implementation of the type of development program. In 1988, the central government adopted the policy of providing more land and housing (i.e. through the construction of two million housing units and the development of five new cities in the capital area), necessitating the creation of the Seoul City Development Corporation. As a result, the number of new housing units soared from 244,301 in 1987 to 750,378 in 1990. Thanks to the reconstruction of deteriorating housing and the development of new towns, the City, which had no new land available, was able to achieve a housing provision rate of 65% in 1995 and 100% in 2011.

During this process a universal development approach was adopted whereby public institutions would develop land in designated districts and private construction companies would come in and build housing complexes. In 1993, the reconstruction standards for deteriorating apartments were eased and public housing reconstruction projects spread quickly. While this top-down approach by government authorities generated several problems, such as landscape degradation, insufficient supporting urban infrastructure, and damage to residential and community environments, it also opened the door to new approaches such as including residents in the plans.

Amidst sweeping socioeconomic and policy changes, SH Corporation has constantly worked to adapt to the new environment by adjusting its roles and functions. This is evidenced by such programs as SHIFT, where the idea of owning housing (a notion created by physical and quantitative-oriented development) has been switched to that of actually inhabiting housing; the construction of housing for the newly-wed and single households to keep up with demographic and social changes; and a program named “Nest of Hope”, which is designed to offer residential stability for low-income families.

Growth

Since its establishment in 1989, SH Corporation has grown into a healthy public entity by successfully managing the supply of public lease housing and urban development programs for Seoul. After the mid-2000s however, it began carrying out major policy programs such as Eunpyeong New Town, Magok, and Munjeong, all at the same time, falling into financial difficulties due to snowballing debt.

<Figure 14> Growth of SH Corporation

In December 1988, the SMG passed the Ordinance on the Establishment of the Seoul City Development Corporation, and the new public corporation was finally launched in February of the following year with KRW 300 billion in capital (increased to KRW 1 trillion in 1990). It comprised 3 departments, 9 divisions, and 28 teams, and employed 389 people. In the early years, its major achievements included the supply of permanent lease housing for 810 households in 1989, the sale of public housing to 3,481 households in 1990, and the supply of 311 commercial units in Junggye and Gangdong.

Expansion of Program Scope (1991 – 2000)

During this period, the Corporation increased the city’s supply of land and housing (both public lease and sale) and contributed to residential stability. In just ten years, it developed an area of 5,962,718㎡ and supplied housing to 112,000 households (69,000 lease housing, 43,000 housing for sale). It also carried out several urban development (restoration) programs, such as the Urban Redevelopment Program in Jeokseon District, SOC (Umyeon mountain tunnel), and reconstruction programs (KIT apartment reconstruction). The Corporation played an active part in preserving the city’s residential culture, participating in projects to preserve traditional housing in Bukchon, Seoul. The Corporation has diversified the scope of its programs to include, among others, the Sangam District and DMC programs.

Expansion of Corporation Programs (2001 – 2005)

Based on its track record in housing supply and urban development, the Corporation pursued its own programs such as the Jangwi/Wolgye District Land Development project in 2001, and other large-scale development programs including Eunpyeong New Town (2014) and the Southeast Distribution Complex (2004).
As the Corporation’s programs diversified, it was renamed SH Corporation and its capital was increased dramatically to KRW 5 trillion (2004). Its pursuit of land and urban development programs actually began as a policy decision made by the SMG, but its pursuit of public policy as part of its mandate resulted in the need for additional, borrowed funding.

Increasing Liabilities (2006 – 2010)

As the scope of the Corporation’s program expanded, large-scale investments were made in Magok, Munjeong, Umyeon 2, and Sinnae 2, leaving it with substantial liabilities. These liabilities were not caused by internal decision or analysis but by the Corporation’s own failure to stop conducting projects on behalf of the SMG. Moreover, the lease housing projects led to even greater debt, and reduced land development and sale housing projects pushed the Corporation to the financial brink.
Currently, in accordance with orders from the SMG and national government, the Corporation is restructuring itself in an attempt to restore its financial health.

Major Achievements

 In total, SH Corporation has developed 16,946,000㎡ of land and built or supplied 230,000 housing units. It has also continued to pursue programs of its own - such as improvement of the urban environment, apartment-type factories, the Southeast Distribution Complex, urban planning and facilities - as well as urban restoration (development) programs commissioned by the SMG.

<Table 1> SH Corporation: Major Achievements

 Source: SH Corporation Programs, 2014 (as of December 31, 2013).

Current Issues & Challenges

Growing Internal/External Need to Secure Financial Health

The Corporation’s unsold Eunpyeong and Southeast Distribution Complex housing and consequent increase in debt led to KRW 540 billion in operating losses and KRW 12.6 trillion in debt as of 2012. The Corporation has taken serious steps to sell the unsold lots and has tightened its belt to reduce debt. However, the Ministry of Public Administration & Security increased the financial management standards for local public corporations, making it more difficult to issue public bonds, which in turn has driven the Corporation deeper into its financial quagmire.

Debt from Existing Programs & Lack of Profitable New Programs

With some 85% of Seoul already developed, there is not much room left for development in the city, and profit from land and housing development is expected to fall in the future. Each year, more and more supplied housing requires repairs and maintenance, further increasing debt from the lease programs, which is expected to reach KRW 214.7 billion by 2013 and KRW 475 billion by 2020. Maintenance costs are also growing over time: between 2002 and 2012, they went up 3.5 times while profits from leasing only doubled.

Growing Demand for Residential Welfare

A rapidly-aging society and the low fertility rate have caused the demand for residential welfare to spike among the elderly and socially vulnerable. The central government and the SMG are requesting more “Happy Homes” and public lease housing, but the Corporation is increasingly incapable of handling such demands financially. As such, the central government and the SMG will need to provide adequate financial assistance to the Corporation if they wish to develop and supply new housing to respond to the changing household types and meet community demands for better residential welfare and services.

<Figure 15> Housing Investment Plans for the Next 5 Years / <Figure 16> Article on Local Public Corporations / <Figure 17> Changes in Types of Household

Outlook on Major Programs

Land Development

While the previous government-led development paradigm used up large plots of land, this is changing toward improving the living environment, aided by resident participation. This new approach is in part a response to the growing awareness of the qualitative value of existing urban and residential environments.

In the future, the abolition of the Housing Site Development Promotion Act is expected to limit large-scale projects even further, and new projects are expected to be carried out in collaborative partnership with the SMG (Public Development Center).

Some of the projects that are expected in the future include the following: construction of more Happy Homes by utilizing public/private land (lots reserved for the rail network) pursuant to relevant central government policies; joint private-public development projects to ease the burden of initial investment; and housing construction projects after changing the original urban plans for unsold parcels.

Housing Construction

The new housing policies geared toward small- and medium-sized housing, such as Bogeumjari Housing or SHIFT, have helped enhance residential stability and the quality of life for low-income families, responding to the specific demands of people with different needs such as newlyweds or large families. Over time, the demands for housing types have also changed, and these have been met by various lease housing policies such as Long-term Housing, Hope Housing, Cooperative Lease Housing, Urban Housing, and SHIFT. A wider range of options for lease housing is expected in the future.

The existing approach of supplying housing on a single, large plot of land may well become less common as the need for a more diverse approach grows, which could include taking advantage of complex developments, unsold land, city-owned land, and urban planning facilities. One of the options currently under consideration is to increase the supply of lease housing while building houses for sale to strike a balance in profitability.

Urban Restoration

Urban restoration has usually been centered on the redevelopment of lease housing, but it is now time to improve profitability. Because there is a limited amount of land and few urban development projects underway at the moment, upcoming projects will have to focus on urban restoration (one of the main programs)).

By its very nature, urban restoration is for the public good, making it important to review ways of making up for profit shortfalls. Some options include low-income housing projects, public studio lease, small lease housing built under overpasses, and restoration projects conducted in collaboration with local government bodies.

Improvement programs pursuant to the Act on the Maintenance & Improvement of Urban Areas and Dwelling Conditions for Residents are currently led only by SH Corporation, but joint implementation with cooperatives is under consideration.

<Figure 18> Human Town & Village Programs and Bogeumjari Housing Projects

The Block-Unit Housing Rearrangement Project (10,000㎡ or smaller) and residential environment management projects implemented by the SMG are still in their initial stages and may require participation by SH Corporation. Undisclosed Data: SH Corporation Mid-to-Long-term Management Strategies 2014-2018, 2013.

Residential Welfare

The focal point of residential welfare programs has been the management and operation of lease housing, which is likely to continue. There is a growing need for residents to play a stronger role in restoring their urban communities, meaning that there is a greater responsibility to develop and manage community spaces and programs so they reflect the needs of the community more effectively. Above all, there is a constant need to provide more services and assistance to improve the residential welfare of people living in lease housing, especially the socially vulnerable. In the future, SH Corporation is expected to continually supply and manage lease housing of its own as well as that of the SMG, in accordance with the city’s long-term plans, which also include purchasing or redeveloping existing houses for lease.

<Figure 19> Diversified Community Space & Activities

Source: SH Corporation Promotional Materials, 2013

Compensation

Due to the reduction in land development projects, compensation is likely to decrease accordingly. While compensation for large-scale development will decrease, it is important to keep up with compensation for smaller lots. SH Corporation will need to sharpen its competitive edge by utilizing its past experience with smaller projects and other various types of projects.

Others

There has been a wide range of projects, from traditional housing preservation and promotion projects to U-City and integrated energy projects in Mokdong and Nowon, as well as the PF project.

The preservation of traditional housing, Eunpyeong Traditional Village, the Southeast Distribution Complex Arcade (Garden Five), and other projects have been developed pursuant to various city policies. As such, SH Corporation will need to respond to each new policy program as it comes.

Based on its experience with the development and supply of research and industrial complexes, the Corporation will need to examine ways to participate in the PF project by reviewing the construction projects in Magok Complex and the city’s quasi-industrial complex, analyzing fluctuations in the property market, and studying the objective of and necessity for the programs and projects. The Corporation will also need to come up with detailed plans for the integrated energy program (January 1, 2002 – present) commissioned by the SMG.

<Figure 20> U-City, Distribution Center, and Integrated Energy Projects

Source: SH Corporation Promotional Materials, 2013

Policy Suggestions

Policy Priority on Residential Welfare

Urban Restoration as the Next Engine for Growth

Other partner cities could refer to the following SH Corporation experiences in establishing their own public corporations:

• SH Corporation Promotional Materials, 2013.
• SH Corporation Program Status, 2014.
• SH Corporation Mid-to-Long-term Management Strategies 2014 - 2018, 2013.
• Maeil Business Newspaper, December 28, 2013.
• Seoul Metropolitan Council Reporting Materials, December 2014.
• The Hankyoreh, December 2012.