In August 1988, the Roh Tae-woo administration (1988-1993) announced comprehensive real estate measures to reduce land speculation deals and increase the housing supply.
Under three laws enacted in December 1989, which reflected the concept of “public stewardship toward land policy,” the government placed a limit on the ownership of housing lots, imposed a tax on excessive profits earned from land sales, and introduced development charges. In 1989, a composite land tax was adopted. Although these laws were later ruled unconstitutional by the Constitutional Court, they played a considerable role in suppressing real estate speculation and stabilizing the land and housing markets. In addition, under the newly enacted Act on Posted Land Prices and Land Assessment, an official system of posting land prices was introduced, with the standard land price serving as the basis for calculating land taxes and special assessments (Young-pyo Kim et. al, 1991; Mi-ock Chae, 1995).
On April 13, 1990, the government announced measures for controlling real estate speculation and made it obligatory to register the ownership of all real estate with the authorities. Under the measures, the categories of land subject to mandatory reporting, and whose sale needed official approval, was expanded. More rigorous criteria were adopted for real estate owned by firms for non-business-related purposes to discourage companies from owning unnecessarily large real estate holdings.
While the government tried to suppress speculative demand for land, it sought to increase the supply of land for new urban projects as it began to build 2 million housing units in 1989 and develop five new cities in 1992. Such radical measures contributed greatly to the stabilization of the real estate market in the early 1990s, although it caused adverse side effects such as a shortage of construction materials.
At the start of the Roh Tae-woo administration, demand for housing was increasing, but the supply of new housing remained at a paltry 200,000 houses a year due to insufficient investments, which resulted in a housing shortage (Table 5-5). The housing supply ratio, which stood at 71.2 percent in 1980, dropped to 69.2 percent by 1987, and house prices, particularly those for apartments in the Seoul region, jumped dramatically. The soaring prices for homes and jeonse (housing lease deposits) caused by the economic boom added to the burden of housing costs for low-income families. The housing shortage became a major problem for the government due to political protests about soaring housing prices.
Table 5-5. Housing stock and housing supply ratio (1980-2006)
In May 1988, judging that only a drastic increase in the supply of houses could solve the problem, the government announced a plan for the construction of 2 million housing units over the next five years, which became a significant turning point in the country’s housing policy.
The plan differed from previous housing policies in that homes were allocated on the basis of a family’s income and earnings potential. Housing speculation was sharply reduced by giving housing priority to those who did not own a home, while the homes could not be resold within a specified period of time. The imbalance in housing distribution was remedied to a certain extent. It also provided various ownership incentives, such as financing support and tax benefits, to low income households.
The number of new housing units rose by 412,000 in 1988, 462,000 in 1989 and by 750,000 in 1990, compared to the annual average increase of 220,000 between 1980 and 1987. The housing plan was completed with the construction of 2.14 million houses (33 percent of the total housing stock of 6.45 million as of 1987) by August 1991, which was ahead of schedule. The government constructed 780,000 apartments as called for under the plan, and the private sector built 1,430,000 units, which was in excess of the original target. Private builders were given incentives to participate in the apartment construction plan, such as replacing a ceiling on the sales price of apartments with a cost-peg system; relaxing regulations on floor space and building-to-land ratios; and tax and financial benefits. The housing supply ratio rose drastically. The country maintained a robust supply of new housing in the following years.
Under the New Five-Year Economic Plan (1993-1997), the Kim Young-sam administration refrained from state intervention in the market, while providing support to the private sector for reviving economic growth. Its policy objectives were an increase in the housing supply, the stabilization of housing prices, the provision of affordable housing to low-income families, and improving the quality of existing homes.
The Five-Year Plan’s support measures for the private sector included the streamlining of administrative procedures (particularly for building authorization and approval), relaxation of regulations concerning building refurbishment or remodeling, and the development of private rental businesses. It also included measures for the reduction of government intervention in the market.
In sum, a total of 3.12 million housing units were built, compared to a target of 2.85 million, since the early 1990s. The new housing units included 1.16 million in the public sector and 1.96 million in the private sector. By region, 1.37 million, or 44 percent, were located in the capital region and 1.75 million, or 56 percent, in other areas. The housing supply ratio rose from 69.8 percent in 1985 to 86.0 percent in 1995 and 92.0 percent in 1997.
Source : SaKong, Il and Koh, Youngsun, 2010. The Korean Economy Six Decades of Growth and Development. Seoul: Korea Development Institute.
References
· Kim, Young-pyo, et. al, Land Price Assessment Standard for Mass Appraisal, Ministry of Construction, 1991 (in Korean).
· Chae, Mi-ock, A Study on the Improvement of Land Price Appraisal System, Korea Research Institute for Human Settlements, 1995 (in Korean).
