The government has announced a structural reform of the Korea Land & Housing Corporation (LH), while the Land and Housing Research Institute under LH recently evaluated Singapore's public development model as "a super-strong public development laboratory." The Singaporean public development structure is a strong reference model for LH reforms. President Lee Jae-myung noted that there is a fundamental problem with LH's structure of developing land and selling it to the private sector, because in the case of Singapore, the government is responsible for the entire public development process from land development to construction and sale.
However, if LH improves its structure to resemble that of Singapore, the revenue structure that previously offset losses through land sales will disappear. In that case, similar to the Singaporean government, it will need to explore ways to cover public development losses in the trillions or through issuing corporate bonds.
According to the Land and Housing Research Institute on the 4th, the institute recently released data comparing housing supply systems in four countries and compared the public development methods of Korea and Singapore. The institute assessed Singapore as "a super-strong public development laboratory that nationalizes 90% of its land and provides homes to 9 out of 10 citizens through a solid central fund."
◇Singapore, where the public is responsible for the entire housing development process... the private sector only executes construction
Singapore's public development model has a structure where the public is responsible for the entire development process, from land acquisition and development to construction and sale. The Singapore Land Authority (SLA) develops state-owned land, which the Housing and Development Board (HDB) then acquires at market price. About 90% of Singapore's territory is state-owned due to land nationalization.
HDB is responsible for all aspects of housing construction and sales after land development. Private construction companies only participate as builders for HDB-developed dwellings. The HDB acts as both the developer and overseeing agency, managing private construction companies. Singapore had previously applied a development method where private construction companies led design, construction, and sales, but this has now been discontinued.
When acquiring an HDB home, subsidies can be obtained from the central provident fund (CPF), similar to Korea's housing & urban fund. The CPF provides subsidies of up to 130 million won for new homes and up to 250 million won for resale homes. The fund size of the CPF is 205.1 trillion won, which is approximately 85 trillion won larger than Korea's housing & urban fund (120.2 trillion won).
Singapore provides rental housing for low-income individuals without homes. The rent is set at around 10% of nearby market prices. For example, if similar rental properties nearby charge 1 million won, public housing would only charge 100,000 won. In Korea, the rent for public rental housing for vulnerable groups ranges from 30% to 80% of nearby market prices.
Since HDB develops and supplies 65% of the total housing supply, structural losses are inevitable. The Singaporean government subsidizes HDB's losses from the national treasury. Last year, the government supported HDB with 7.4 trillion won.
◇LH, a structure that sells land to the private sector for development... concerns over 'housing price increases'
LH's public development method is dual-faceted. It involves constructing dwellings itself after acquiring land and selling the land to private construction companies for them to build and sell.
Among these, the recently targeted reform concerns the method of transferring land to the private sector for development, which has been criticized as 'land trading.' President Lee pointed out during a Cabinet meeting last June that there is a fundamental issue with LH's structure of 'developing land and selling it to private companies.' This structure leads to problems where LH sells land to private construction companies at high prices, which reflects in the sale prices of housing, contributing to rising home prices.
The Singaporean reform model is receiving attention because President Lee mentioned it during the 2022 presidential election. At that time, he said, "In Singapore, a 30-pyeong apartment is constructed for around 300 million won, and we can give long-term leases for around 400 million won, allowing those who wish to live here to eventually buy their own homes and move out, with the public taking considerable responsibility for intermediate stops."
Accordingly, the Ministry of Land, Infrastructure and Transport is considering a structure that allows LH to expand the provision of public housing instead of selling land to the private sector. Minister Kim Yoon-deok emphasized at his inauguration ceremony held on the 31st of last month that "LH should expand its public role for the stability of housing for ordinary people through fundamental structural reform," and that "we need to restore the housing ladder so that everyone can start from affordable housing and move to better living conditions."
◇The Singapore model may be difficult to apply directly in Korea
However, there seems to be limitations on significantly expanding the public's role like in Singapore. This is because the vast majority of land in Singapore is state-owned, leading to a different scale of land available for development.
For LH to independently expand the supply of public housing, significantly more manpower and expenses will need to be invested. Singapore provides about 20,000 housing units annually from the public sector. However, LH's public offerings and rental scale exceeded 100,000 units last year based on project approvals.
The need to cover deficits caused by reducing land sales through taxes or issuing corporate bonds is also a reason why it is challenging to fully apply the Singaporean development model. LH has been covering losses in public rentals with funds raised from selling land to private sectors. It is known that there is a loss of about 110 million won incurred for each unit of public rental constructed. The liabilities also amount to 160 trillion won. If the profits from land development decrease, it will need to manage losses in public rentals through government funding or by issuing corporate bonds.