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Korea’s Housing Supply: Issues and Resolutions

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  • 저자 송인호(宋仁豪)
  • 발행일 2019/08/26
  • 시리즈 번호 No. 275 (2019-04), eng.
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요약 ■ Korea’s housing supply ratio, based on the number of households, and housing stock, based on population size, are rising rapidly on the back of large-scale provisions of apartments.

■ The supply market, however, has become highly volatile, with sharp recurring ascents and descents, and the recent spike, in particular, has become a burden on the construction industry and housing market, among others.

- Following an unprecedented increase in the housing supply in 2015-2017―even by basic housingdemand standards―the number of unsold new housing has continued to rise as the supply of housing completions and move-ins continue to enter the housing market.

ㆍThe increase in unsold new housing after completion could negatively impact the financial soundness of construction firms as well as housing finance-related institutions.

- In addition, a reverse-jeonse phenomenon is expected this year, in which tenants may possibly encounter cash flow problems while landlords face growing pressure as they deal with increasing difficulties in finding new tenants and returning jeonse deposits on time.

■ Therefore, efforts are needed from the government in seeking measures to curb the volatility in the housing supply.

- Construction firms should be bound by a higher equity burden and housing finance-related institutions should be more specialized and have more responsibility.

- A demand-centric housing supply system, which can meet the needs arising from social change, including low birth rates, population aging and increasing single-person households, is required.
요약 영상보고서
Korea saw a sharp increase in the housing supply from 2015 to 2017.

An analysis by KDI reveals that during the past 30 years,
the housing supply has exhibited rapid recurring up- and downturns
every 4 to 5 years.

Homes in Korea are generally supplied via construction
and designation of residential sites,
following a time gap through apartment pre-sales.

And because residential sites are intensely sold by
the government during specific periods,

and because construction firms wait, sometimes long periods,
until conditions in the housing market improve to start construction,
the housing supply can be highly volatile.

Construction firms are able to execute their projects on
large-scale apartment complexes using the funds
they obtain through down and intermediate payments from apartment pre-sales.

In addition to the supply side, demand-side factors
such as low interest rates and loan regulations are
also driving the rapid increase and decrease in the housing supply.

Problems arise when new unsold housing supply grows
on the back of rapidly increasing household supply
and then reverses to a rapid decline again.

In fact, the surge in the housing supply in 2007
left a huge number of new housing unsold two years later.

In the process of resolving these problems,
many construction firms suffered from bankruptcies
despite their cutting of pre-sale and sale prices.

And, this in turn severly weakened the soundness of
the financial industry with numerous savings bank-branches suspending operations.

According to the analysis results,
a 10% increase in the number of pre-sale homes would ramp up
the number of unsold new homes by an estimated 3.8% three years later.

It is expected that due to the surge in the housing supply from 2015 to 2017,
30,000 new homes will remain unsold by 2020,
again raising concerns over the financial soundness of
the financial industry and construction firms.

Moreover, the housing market will also be adversely affected.

In 2019, provincial areas in particular saw their jeonse prices fall.

If this trend continues, a situation in which
lessors are unable to return deposits due to
the fall in jeonse prices,
known as a reverse-jeonse phenomenon, is expected

(Interview with the author)
Korea’s housing market has surpassed the growth stage and entered the mature stage.

The housing supply ratio has exceeded 100% and in preparation for the increase in single-person households and an aging population, a demand-centric, rather than a large-scale, provision of housing is needed.

Also, construction firms should be bound by a higher equity burden and supplementary systematic measures are needed to strengthen the responsibility of financial institutions.
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