The government is repeatedly questioning the housing supply effect of reconstruction and redevelopment. Even with maintenance projects, the number of households does not increase much, and the demolition of existing dwellings can stimulate nearby home prices and jeonse prices. A review of related statistics found that the planned number of households in Seoul redevelopment projects increased just 6% from the existing level, limiting the supply effect. However, Seoul reconstruction rose 46.8% and nationwide redevelopment rose 54.4%, making it hard to generalize that the number of households typically decreases when a maintenance project is carried out. Jeonse price increases due to demolitions were also concentrated in certain areas and periods.
President Lee Jae-myung said at the "National public debate on real estate policy" on the 23rd that "reconstruction can increase the number of households in some cases, but the area per household also gets larger, so the total number of households does not seem to increase much," adding, "with redevelopment, the total number of move-in households usually seems to decrease."
Minister Kim Yun-duk of the Ministry of Land, Infrastructure and Transport also said at a forum chaired by the prime minister on the 27th, "When carrying out a maintenance project, there is a 'demolition effect' that removes homes, and there are many views that this can instead become a problem that raises dwelling prices."
Taken together, statistics and research show it is true that the increase in the number of households from Seoul redevelopment is small. However, including reconstruction and redevelopment in the provinces, it is hard to deny the supply effect of maintenance projects. Observers note that the demolition shock is an issue to be reduced by adjusting relocation timing and areas, and it is difficult to use it as grounds to delay maintenance projects themselves.
1) Seoul redevelopment up 6%… reconstruction at 46.8%
An analysis by the Korea Land & Housing Corporation (LH) Land and Housing Research Institute of the Ministry of Land, Infrastructure and Transport's 2022 status of urban maintenance projects found that the planned number of households in reconstruction projects increased 56.7% on average nationwide from the existing level. The growth rate was 46.8% in Seoul and 69.4% in the provinces.
In Seoul redevelopment, the planned number of households rose 6% from the existing count. That is because in areas dense with single-family and multi-family dwellings, it is difficult to sharply increase the number of households even if they are converted to apartments. However, in provincial redevelopment, the planned number of households increased 135.5% from the existing level, and the nationwide average growth rate was also 54.4%. It is hard to see the number of households typically decreasing after redevelopment.
2) Demolishing 1,000 households lifts jeonse prices 0.69%
Maintenance projects demolish existing dwellings first and supply new apartments years later. In this process, when existing residents move into the nearby rental market, jeonse demand can concentrate in the short term.
According to a paper published in the Korea Housing Finance Corporation's academic journal "Housing Finance Review," when 1,000 dwellings are demolished, jeonse prices within a 1-kilometer radius rose 0.69% six months after demolition. That means that if adjacent maintenance project sites begin relocation and demolition around the same time, a localized jeonse shortage can occur.
However, the upward trend did not continue. Jeonse prices fell 0.64% 16 months after demolition. Even three months after 1,000 new dwellings were completed, jeonse prices within a 1-kilometer radius fell 0.78%. Afterward, as housing demand flowed in, prices rose 1.16% 12 months after completion. Jeonse prices before and after maintenance projects moved differently depending on the timing of demolition, move-ins, and demand inflow.
3) Maintenance projects account for 65% of Seoul apartment supply
Seoul has limited alternative supply options to maintenance projects due to a shortage of new housing sites. An analysis by the Korea Research Institute for Construction Policy of Real Estate R114 data found that from 2005 to 2024, redevelopment and reconstruction accounted for an average of 65.4% of Seoul apartment completions. In 2023, it topped 80% for the first time.
Maintenance projects not only increase the number of dwellings but also improve the safety and living environment of aging residential areas. In Feb., a fire broke out at Eunma Apartments in Gangnam District, Seoul, which is 47 years old and undergoing reconstruction, killing one teenager and bringing renewed attention to safety issues in aging multifamily dwellings.
Experts say authorities should manage projects so that demolition and relocation do not pile up all at once, rather than suppressing maintenance projects.
Seo Jin-hyeong, a professor at Kwangwoon University, said, "The supply effect of maintenance projects is clear," adding, "to reduce the demolition shock, the public and private sectors should increase the supply of rental dwellings." Nam Hyuk-woo at Woori Bank's real estate research institute said, "A cyclical maintenance method that staggers relocation schedules by region can also be an alternative to reduce market shocks."