High interest rates and soaring construction material costs have led to a significant decline in new apartment building permits in South Korea, which is expected to affect housing prices over the next three to five years. The number of apartment permits issued in the Seoul Metropolitan Area fell by 27% over the past two years, from 2022 to 2023, compared to the previous two years between 2020 and 2021. Seoul, in particular, saw a dramatic drop of 45%.
Last year, Seoul issued permits for just 21,284 apartments, the lowest number since records began in 2007. The total number of permits for all housing units, including single-family freestanding homes and low-rise apartment buildings known as villas, amounted to only 26,000. The Yoon Suk-yeol administration had announced an ambitious plan to build 2.7 million housing units in five years, including 80,000 units in Seoul in 2023, but the actual number of permits issued was only a third of this target.
The slowdown in construction, caused by rising costs and interest rates, has nearly halted the country’s public and private apartment supply. Given that building an apartment usually takes two to three years, a shortage of available units in the metropolitan area is expected next year. Meanwhile, the demand for apartments is showing signs of rebounding after a recession-induced downturn. Monthly apartment transactions topped 4,000 for the first time in 31 months, and Seoul apartment prices have been rising for five consecutive weeks. Prices of “jeonse”, Korea’s distinctive housing lease system where tenants pay a large lump sum deposit to live in a home for several years, have also increased for 49 straight weeks. Coupled with the rush to buy homes, we may face another round of “crazy housing prices” reminiscent of the former Moon Jae-in administration. This is a critical situation.
The fastest and surest way to increase housing supply is to revitalize redevelopment and reconstruction efforts. The government has proposed measures such as the “reconstruction fast track,” which allows apartments over 30 years old to be rebuilt without passing safety inspections, and has suggested lowering the age requirement for redevelopment projects, tax incentives for purchasing unsold apartments in rural areas, reviving short-term registered rentals and introducing corporate long-term rental housing. However, these measures require amendments to existing laws, which the Democratic Party of Korea has opposed as “tax cuts for the rich” and “special treatment for the construction industry.” The government’s attempt to remove the residency requirement for apartments with price caps was also blocked by the Democratic Party last year.
Given the expected shortage of housing supply and the Democratic Party’s resistance to easing real estate regulations, the housing supply crisis is likely to intensify. The Democratic Party should heed the lessons from the Moon administration’s missteps and work towards increasing housing supply to prevent another cycle of skyrocketing housing prices.
