With rental listings shrinking in Seoul and instability growing in the leasing market, calls are mounting for faster supply of non-apartment homes in urban areas. Apartments require considerable time from land acquisition through permits, construction, completion and move-in, while non-apartment housing — low-rise multi-unit housing, studio-type urban housing and officetels, studio units used as either homes or offices — can be delivered in a relatively short period because it uses existing land and infrastructure in built-up areas. Because such homes are less preferred than apartments, analysts say supply should not simply be expanded in volume but must offer the locations and quality buyers want. They also advise easing rules on multiple-home owners, who function as suppliers of rental housing, and revitalizing the corporate rental market.
Permits for non-apartment homes plunge 77% in four years — Non-apartment supply has fallen sharply, though it has picked up somewhat recently. According to the Ministry of Land, Infrastructure and Transport on the 2nd, permits for non-apartment homes totaled 33,061 units last year, down 11.4% from 37,330 units a year earlier. Construction starts fell 7.7% over the same period. As of August this year, permits were down 76.5% and starts down 78.1% from 2022.
Behind the plunge is a combination of factors: the fallout from jeonse deposit fraud, concerns about falling home prices, high land and construction costs, rising financing costs and a deepening preference for apartments. For private developers, recovering project costs through presales or leasing has become harder than in the past, and with the real estate project financing (PF) market frozen, incentives to launch new projects have weakened. In effect, a large share of the housing that could be supplied relatively quickly in urban areas has stalled at the project stage.
That is why the government has turned to public acquisition of rental housing as the central tool for reviving non-apartment supply. The land ministry plans to supply 90,000 purchased rental homes in the greater Seoul area this year and next, concentrating 66,000 of them in regulated zones in Seoul and Gyeonggi Province. To achieve the intended supply effect, efforts are needed to screen out projects with weak viability and to remove obstacles in the intermediate steps before homes are actually delivered. Newly built purchased rental housing must pass through multiple stages after a private developer applies: review, a purchase agreement, land acquisition, construction start, completion, purchase and move-in. According to data submitted to Rep. Boo Seung-chan of the Democratic Party of Korea, a member of the National Assembly's Land, Infrastructure and Transport Committee, by the land ministry and the Korea Land & Housing Corporation, applications last year reached 288,317 units, but only 14,195 units actually broke ground. Applications poured in, but they did little to ease the shortage of listings in the leasing market.
Financial support needed to restore the low-rise multi-unit housing supply ecosystem — The government has acknowledged the bottleneck and is overhauling its support system this year. It raised land acquisition support from the Korea Land & Housing Corporation (LH) to as much as 80% of land costs and strengthened project financing guarantees from the Korea Housing & Urban Guaranty Corporation (HUG), lowering the initial capital developers must raise on their own to about 10% of land costs. After construction begins, purchase payments are made every three months based on construction progress, and a "build first, verify later" approach is applied to sites where construction is delayed by construction-cost verification. Deregulation to improve the viability of non-apartment projects themselves is also under way. Through these measures, the land ministry aims to supply 41,000 non-apartment homes in the greater Seoul area from this year through next year and 110,000 units by 2030.
Experts advise reflecting location and quality in supply standards and strengthening financial support so that homes buyers shun are not mass-produced. Restarting stalled urban projects and turning vacant rental units into homes people want to move into could go some way toward easing the shortage of jeonse and monthly-rent housing, they say. Kim In-man, head of the Kim In-man Real Estate Economic Research Institute, said: "For non-apartment homes, not only presales but leasing has become difficult, and with land and construction costs rising, building anew in Seoul is not easy." He stressed that "the priority is to improve both financing and regulation to create an environment where the private sector can take on projects again."
Private rental market needs revitalizing, corporate long-term leasing needs expanding — Because public purchases of homes alone have limits in resolving the structural supply shortage in the leasing market, some advise pursuing policies that turn the private rental market itself into a stable source of housing supply. In particular, they say what is needed is a system that gives predictable tax and financing benefits to operators who lease for a set minimum period and faithfully meet obligations such as rent terms and the return of deposits, so that multiple-home owners can function as stable suppliers of rental housing. Shin Bo-yeon, a professor in the Department of Real Estate AI Convergence at Sejong University, said: "Supply support measures such as expanded purchased rental housing are being prepared, but there are not enough incentives to induce private participation in supply, including improvements to the registered rental business system." She added that "the tax system needs to be redesigned so that it does not discourage private rental supply."
Corporate long-term leasing also needs to be expanded to stabilize the jeonse and monthly-rent market. Once a structure takes hold in which real estate investment trusts and institutional investors own and lease homes over the long term, it can ease the problem of listings shrinking abruptly depending on whether individual landlords renew contracts or sell. The government has presented the introduction of new types of long-term private rental housing and stable rental operations through REITs as policy directions, but these have yet to take off. Park Jin-baek, an associate research fellow at the Korea Research Institute for Human Settlements, said: "The private rental supply structure should be reorganized from an individual-centered model to one centered on corporate long-term leasing, while building a stable rental supply base that meets public-interest requirements such as housing stability for tenants through limits on rent increases."
