Local housing cooperatives (hereafter local co-ops) have demanded revisions to the law, saying they are being subjected to absurdly low acquisition prices for rental housing compared with redevelopment and reconstruction projects. They argue it is unfair that, even though they build the same public rental housing and provide it to local governments through contributed acceptance, they are compensated for only about half the construction cost.
According to the industry on the 8th, on the 5th a petition titled "Petition to improve the sale price standard for rental housing by local housing cooperatives" was posted on the National Assembly's e-petition system. The thrust is a call to improve the unfair standards for selling rental housing in multifamily housing construction projects. They want the discriminatory sale price standard for rental housing by local co-ops to be improved to 80% of the base construction cost, the same as under the Act on the Maintenance and Improvement of Urban Areas and Dwelling Conditions.
Contributed acceptance means setting aside a portion as parks or rental housing in return for allowing higher floor area ratios in maintenance projects. The more contributed acceptance is provided, the greater the floor area ratio incentives received, improving project feasibility and increasing the number of apartments that can be sold through general sales. Typically, in return for a higher floor area ratio, the land is donated free of charge to the local government through contributed acceptance, while the local government pays the cooperative the construction cost of the rental housing built on it and takes it over.
However, in the case of local co-ops, "bargain-basement compensation" that does not even cover building costs is holding them back. The losses incurred each time rental housing is built are outstripping the gains from higher floor area ratios. Critics say the system to ease floor area ratios, introduced to enhance feasibility, is boomeranging back to tighten the noose around local co-op members.
The controversy stems from the enforcement decree of the Act on the Maintenance and Improvement of Urban Areas and Dwelling Conditions, revised in Dec. 2024. As raw material prices and construction costs surged due to the COVID-19 pandemic and the war in Ukraine, the government raised the compensation standard for construction costs of public rental housing in redevelopment and reconstruction projects from the existing standard construction cost to 80% of the base construction cost.
But the Housing Act, the legal basis for local co-op projects, was excluded from the revisions, creating a blind spot. Local co-ops are still subject to the old standard construction cost. Specifically, while maintenance projects are compensated about 5.77 million won per 3.3 square meters (one pyeong), local co-ops receive only about 3.69 million won per pyeong. Even when supplying rental housing built with the same materials and labor, local co-op members are effectively recognized for only half the construction cost.
Kim Seul-gi, cooperative head of Hillstate Isuyok Central (Sadang 3-dong Local Housing Cooperative), said, "Co-ops that are in the early stages of their projects find it difficult to speak up right away, so we are rallying support mainly from sites that have already entered groundbreaking and sales," adding, "Starting with this National Assembly petition, we will actively bring to public attention, through local political circles and others, the discriminatory administration and fairness issues facing local co-ops."
Industry officials said that as the government is simultaneously pursuing the securing of public rental housing and the expansion of private housing supply to stabilize the housing market, these legal shortcomings must be swiftly addressed. If the unreasonable construction cost standard persists, the feasibility of local co-op projects will deteriorate, which could ultimately lead to a contraction in private housing supply.
Local co-ops are known nationwide for having a success rate of only about 10%. That is because of difficult procedures such as securing ownership of more than 95% of the housing construction site land. As of the end of March, there were 112 local co-ops underway in Seoul, of which 15 had received project plan approval and started construction, accounting for 13% of all project sites.