The voices from housing construction sites across Korea are more desperate than ever. The housing industry's ecosystem is being shaken at its foundation amid the so-called "triple whammy" of prolonged high interest rates, soaring construction costs, and a funding crunch. In particular, the accumulation of unsold units and the transaction cliff in provincial regions have reached levels severe enough to spill beyond the housing industry's crisis into a broader regional economic downturn.
The most concerning aspect in this crisis is the sharp decline in the supply of "non-apartment" housing such as villas and officetels. Non-apartment housing is a representative form of residence for low-income households, as it allows for quick supply within urban areas thanks to shorter construction periods compared to apartments. With relatively low initial financial burdens and diverse locations including job-housing proximity, it has faithfully served as a housing ladder and a realistic stepping stone to home ownership for young people and newlyweds.
However, as demand contracted in the wake of jeonse (a Korean lease system requiring a large lump-sum deposit instead of monthly rent) fraud cases, financial institutions halted lending, and heavy taxation on multi-home owners was imposed, suppliers of non-apartment housing have virtually disappeared from the market. Combined with declining market trust, a vicious cycle has emerged in which demand and supply are freezing simultaneously. In particular, non-apartment housing has many "invisible unsold units" that do not appear in official statistics, intensifying the funding crunch for operators, while new construction financing from financial institutions is effectively blocked.
The government's presentation of a "two-track strategy" to normalize the non-apartment market, including the expansion of public purchase rentals and tax benefits for newly built small homes, is certainly a meaningful step. However, more bold and forward-looking policy support must accompany this to normalize the market, and practical and concrete measures are urgently needed to incentivize private suppliers to secure business viability and return to the market.
To this end, financial regulations must first be dramatically eased. Currently, mortgage lending to housing sales and rental operators is restricted within regulated zones, but mortgages for non-apartment housing supply need to be allowed in a forward-looking manner. For actual business financing such as construction payments, land purchases, and project financing (PF) repayments, the loan-to-value (LTV) ratio should be applied up to 70% to ease cash flow.
Second, the floor area standard for multi-family housing should be raised from the current 660 square meters to 990 square meters. This would encourage high-density development of small plots while improving the quality of housing in terms of lighting, ventilation, and parking, creating a living environment that consumers can actually choose with satisfaction. Raising the floor area standard would transform old and poor multi-family housing into healthier and more pleasant urban residential spaces, simultaneously enhancing residential stability and competitiveness.
Third, the criteria for excluding non-apartment housing from the housing count should be eased from the current 60 square meters of exclusive area to 84 square meters. This could serve as a strong signal to draw real demand groups such as three- to four-person households into the market. By acknowledging the "apartment-ization of non-apartment housing," it can broaden housing choices for newlyweds and the middle class, and contribute to stabilizing the rental market by converting jeonse demand into purchases.
While apartments typically take three to five years or more until move-in, non-apartment housing can be supplied quickly within two to three years. Non-apartment housing is the most realistic and immediate prescription for resolving the housing shortage in urban areas. At a time when future supply gaps are a serious concern, the role of non-apartment housing with speed and flexibility becomes even more important.
