The Land and Housing Corporation (LH) under the Ministry of Land, Infrastructure and Transport projected that the shortage of dwellings this year will materialize, leading to increased market instability. A rise in dwelling prices is expected due to the widening gap between supply and demand. However, deepening economic uncertainties are likely to restrain the rise in dwelling prices. There is also a possibility that rental prices will increase as the volume of new move-ins decreases.
According to the LH Land and Housing Research Institute's report titled '2025 Economic Prospects and the Role of Public in Stabilizing the Dwelling Market' released on the 26th, the shortage of dwellings is expected to persist for the time being. This is influenced by the rise in import raw material prices due to the increase in exchange rates and the protracted resolution of problematic real estate project financing.
Due to domestic uncertainties such as the impeachment crisis, the government's schedule for dwelling supply may be disrupted, leading to heightened concerns over supply shortages. However, it is expected that the issue of dwelling supply shortages in the metropolitan area will be more pronounced than political risks or uncertainties related to foreign trade, and the government's stance on expanding dwelling supply is expected to remain unchanged.
While the supply of dwellings is insufficient, demand is expected to expand. A new policy loan of 55 trillion won and interest rate cuts are anticipated to stimulate dwelling demand.
As the gap between demand and supply widens, dwelling prices are expected to come under upward pressure. Weak domestic demand and economic slowdown could act as downward factors for dwelling prices. In the rental market, the lack of new move-ins due to supply shortages may lead to rising rental prices.
The report predicted that the budget for social overhead capital (SOC) this year would decrease compared to last year, and construction activity is expected to show sluggish trends due to the delays in project financing restructuring. The SOC budget decreased by 3.8% compared to the previous year. There remains a risk that the restructuring of approximately 10 trillion won worth of business sites could be delayed due to changes in market conditions and the circumstances of transaction partners.
The report argued that the government's role must be strengthened to stabilize the dwelling market. It emphasized, 'LH should increase the dwelling supply by 10% plus alpha (α) from the long-term average to alleviate the shortage of dwellings and boost private construction activity early on, focusing on stabilizing the dwelling market rather than short-term revenue.'