(This article was originally posted on SisaWeek on September 2, 2024 in Korean and translated. See the original article through URL link below)  

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SisaWeek = Reporter Lee Kang-woo

The government is encouraging corporate participation in the supply of rental housing by providing tax incentives and easing regulations. This is intended to promote corporate involvement and extend rental periods to up to 20 years, ensuring stable housing for tenants. Research institutions and civic groups have expressed their views on this issue, mentioning both positive and negative aspects.

Last month, on the 28th, the Ministry of Land, Infrastructure and Transport (hereinafter referred to as MOLIT) announced a new plan for the supply of rental housing to ensure housing stability for low- and middle-income households and future generations. The key aspect of this plan is the activation of ‘corporate rental housing’ to address the imbalance in the rental market, where 80% of rental housing is provided by the private sector, and 90% of that is managed by individuals.

Government: “We will supply rental housing through corporate-led initiatives and utilize old government buildings”

According to MOLIT, 20% of the rental market in Korea is supplied by the public sector, while 80% is supplied by the private sector. The Korea Research Institute for Construction Policy (KRICP) stated that over 90% of the private rental sector is managed by individuals, with corporate involvement accounting for just around 5%.

MOLIT noted that the private rental market has not industrialized due to excessive rent regulations and tax burdens, which have prevented the sector from scaling up. Instead, it has been dominated by small-scale, unregistered, individual multi-property owners.

This structure has led to a shortage of long-term stable rental housing. To address this, the government proposed two solutions: ‘a new type of long-term private rental housing (corporate rental housing)’ and ‘a plan to supply housing through the redevelopment of old public offices.’

The government plans to ease excessive rent regulations and heavy taxation on corporations operating long-term rentals, provide financial support through PF guarantees and loans, and offer tax benefits such as acquisition and property tax reductions. Additional support, such as land supply and urban planning relaxation, will also be implemented.

The business model will be subdivided into three categories—autonomous, semi-autonomous, and supported—so that companies can choose a model that suits their goals and conditions.

Currently, the rent regulation allows rent increases of no more than 5%, with adjustments based on the Consumer Price Index (CPI) in relation to local market prices. In the new models, the autonomous type will relax all rent regulations except for the mandatory deposit guarantee and the obligation to report lease contracts under the Private Rental Housing Act. The semi-autonomous type will apply the right to renew contracts and the 5% rent cap but exclude other regulations. Lastly, the supported type will apply the semi-autonomous regulations, with an initial rent set at 95% of the market rate.

Additionally, by 2035, the government aims to supply 50,000 rental homes through the redevelopment of old government buildings.

MOLIT acknowledged that while similar projects have been pursued in the past, progress has been slow due to the need for direct involvement from public institutions and individual agreements with local governments. Moving forward, a council led by MOLIT and involving the Ministry of Strategy and Finance, the Ministry of the Interior and Safety, local governments, and developers will be formed to institutionalize the process. Furthermore, the redevelopment of old public offices into mixed-use spaces, including rental housing, will be mandated.

In cases where areas are designated as multi-use zones, floor area ratio (FAR) can be increased by up to 200%, and building coverage ratio (BCR) by up to 150%, allowing for the construction of rental housing above new office buildings. Even if the area is not designated as a multi-use zone, in areas near subway stations, the FAR can be increased by 120%, allowing for the development of high-density, mixed-use rental housing.

Research Institutions: “A framework for stable supply”… Civic Groups: “Is this a repeat of the ‘New Stay’ policy?”

There are mixed reactions to the government's plan. While there are positive aspects, some are concerned that past mistakes may be repeated.

Kim Sung-hwan, a Senior Research Fellow at the Korea Research Institute for Construction Policy, noted in a briefing that “the model is suitable for a new business as it guarantees stable cash flow for at least 20 years.”

He pointed to examples abroad, saying, “Looking at advanced cases in countries like Japan, corporate rental housing can ensure monthly cash flow through rental income, making it a model worth considering for portfolio diversification.”

However, he added, “There are challenges, such as ensuring the quality of rental housing and maintaining minimum service standards. Measures should also be in place to prevent the exclusion of low-income households due to the premiumization of rental products.”

Civic groups offered harsh criticism. They compared the current plan to the “New Stay” program under the previous administration, which was criticized for providing various benefits to private developers but had high rents and lacked public interest.

The People's Solidarity for Participatory Democracy (PSPD) commented on the government’s plan, stating, “New Stay offered benefits to private developers but was criticized for high rents and lack of public accountability. It was later converted to public-supported rental housing under the previous government, with rent regulations and restrictions on tenant eligibility.”

The PSPD called for a comprehensive overhaul, including mandatory registration of rental housing for stability in housing for low-income households, reducing excessive benefits compared to rental business obligations, and strengthening the oversight and management of local governments.

They also criticized the expansion of the business model. The PSPD said, “The autonomous model is essentially exempt from all regulations except for deposit guarantees and contract reporting under the Housing Lease Protection Act. However, it will still benefit from relaxed construction regulations, such as FAR and BCR, as well as tax benefits on acquisition, corporate, and comprehensive real estate taxes, and PF guarantees. As a result, many private or corporate-owned rental properties could switch to the autonomous model, leading to an unjustified level of support for private rental housing without any public benefit.”