What people looking for a place to live want to know is simple: when and where can they find a home they can afford? Yet the central government and the Seoul Metropolitan Government are at odds over who is to blame for the housing shortage. At a news conference on Sept. 18, President Lee Jae-myung pointed to declining housing permits and construction starts as the cause of the shortage and raised the question of Seoul's responsibility. Three days later, Seoul Mayor Oh Se-hoon countered that the lifting of redevelopment zone designations in the past and central government restrictions on rebuilding had weakened the supply base.
To judge this dispute, one must look beyond the size of the numbers and examine which period and which stage of the supply process each side is citing. Redevelopment and the rebuilding of aging apartment complexes take years to move from zone designation through permits and construction starts to move-in. If starts have fallen this year, the cause may lie in the early stages of projects launched several years ago, or in recent increases in construction costs and project delays. Just as a drop in permits at a given point cannot be blamed entirely on one party, a contraction in past redevelopment does not erase present responsibility. What is needed is not a single number aimed at the other side, but data showing at which stage projects stalled and why.
The bigger problem is that neither side adequately explains how expanded supply will affect housing costs for residents. Even when rebuilding produces new apartments, they are built on the sites of demolished homes, so the full volume of completed units does not translate into a net increase in the housing stock. Moreover, in prime locations in the Gangnam area, where aging homes are replaced by high-end new construction, an increase in the number of homes can come alongside an increase in ultra-expensive ones. Expanded supply alone, therefore, cannot be assumed to ease the housing cost burden on residents.
That said, the arrival of ultra-expensive new construction is not by itself proof that supply had no effect. Had no new homes been built, surrounding prices might have risen further. Conversely, it is also hard to expect price stability simply because the number of homes has increased. Prime locations in the Gangnam area are difficult to replicate, and a preference for new construction, demand backed by purchasing power and expectations of further price gains all work together. Supply and demand theory explains the principle by which rising supply affects prices, but it alone cannot determine when or by how much prices in a particular district will change.
The central government and the Seoul Metropolitan Government agree on the need to expand supply, but they emphasize different tools. The central government stresses development of new building sites, faster progress on redevelopment and rebuilding, and financial support. Seoul calls for higher floor area ratios for private redevelopment and rebuilding projects and an easing of rules on relocation loans. Whichever tool is chosen, however, an announcement promising a certain number of units is not enough. What residents need to be able to verify is the actual move-in timing, the net increase in units and the price range of the homes to be supplied. Whether through the use of public land or the easing of redevelopment rules, supply plans should be assessed by these standards.
Expanding supply takes time, but the burden of jeonse (a lump-sum deposit lease) prices and housing costs continues now. That is why future permit volumes cannot be presented as present-day achievements in housing stability. The central government and Seoul must reduce delays in long-term projects while also responding to jeonse pressures in areas where redevelopment relocations are concentrated and to instability in the lease market during periods when new move-ins are scarce. Even if sale prices in high-cost districts correct briefly, it is hard to say overall housing conditions have improved if monthly rent and jeonse burdens grow elsewhere.
For expanded supply to translate into housing stability, how development gains are distributed must also be examined. Even if rules are eased to accelerate projects, the benefits must not stop at higher asset values for owners. Part of the additional floor area ratio secured through eased rules should be used for public housing and similar purposes so that more residents share in the gains. At the same time, the burden of public contributions must not block projects from moving forward, so feasibility and public benefit need to be weighed together. It is necessary to disclose how much earlier eased rules can bring construction starts and what level of public contribution would follow, and to maintain predictable standards.
This is not to say past responsibility should be buried. To assess responsibility properly, timetables for each project from zone designation to move-in should be published along with the causes of delays. Supply performance should be measured not by announced volumes but by net household increases and actual move-ins, and changes in surrounding sale prices and in monthly rent and jeonse burdens should also be tracked. Only then does the blame game lead to better policy.
While the central government and Seoul argue over each other's responsibility, residents still have to bear home prices and housing costs. In the end, one question decides whether supply policy succeeds or fails. It is not who announced more units, but when and where residents can live in a home they can afford.
