The private supply ecosystem for non-apartment housing such as villas, row houses, and multi-family homes is collapsing. Housing starts in the first half of this year plunged 78.7% from five years ago. Although permits increased, they have not led to actual construction. There are calls to not stop at easing building regulations but to also adjust construction finance, business loans, and the tax system together.
According to the Ministry of Land, Infrastructure and Transport on the 3rd, nationwide non-apartment housing starts in the first half of this year totaled 14,773 units, down 6.2% from the same period last year. First-half non-apartment starts fell from 69,274 units in 2021 to 48,690 in 2022, 23,129 in 2023, 17,366 in 2024, and 15,749 in 2025, decreasing every year. This year's starts are only 21.3% of 2021 levels.
Permits and starts moved in opposite directions. In the first half of this year, non-apartment permits were 16,887 units, up 4.6% from a year earlier. While the number of units approved for construction increased, the number that actually entered construction decreased. Because it takes time for permits to lead to starts and completions, there is an outlook that supply will be hard to recover in the short term.
Non-apartments generally refer to housing other than apartments, such as single-family and multi-household homes, and row and multi-family homes. The government's non-apartment supply measures also include urban lifestyle housing and residential officetels. With construction periods of one to two years—shorter than apartments—and the ability to utilize small sites in city centers, they are considered a means to supply dwellings in a short period.
The contraction of the project financing (PF) market is affecting the decline in non-apartment supply. Non-apartment developers rely on PF loans for a significant portion of land acquisition costs and construction costs. However, after the jeonse fraud incidents, purchase demand fell and the risks of unsold units and unsold lots grew, making financial companies' screening for new loans more stringent.
Loan regulations on dwelling sales and rental business operators are also a burden. Currently, in the greater Seoul area and regulated areas, the loan-to-value (LTV) ratio is 0% for loans to dwelling sales and rental business operators secured by dwellings as collateral. However, there are exceptions, such as the first business loan secured by newly built dwellings.
Industry officials note that as it has become harder for rental business operators to raise funds to acquire existing dwellings to secure project sites or to buy completed non-apartment units, business feasibility and PF funding conditions have also worsened. Given the characteristics of the non-apartment market, where the share of purchases by rental business operators is larger than for apartments, when purchase demand contracts, new projects inevitably decrease.
The government plans to supply 90,000 units of purchase-based rental dwellings in the greater Seoul area this year and next year. The public sector will either directly purchase dwellings built by the private sector or sign purchase agreements before groundbreaking and then buy the completed dwellings to lease them.
A real estate expert said, "If selected for LH's new-build purchase agreement, developers can receive support for raising construction funds, but for small-scale villas run by small operators who find it difficult to apply for purchase agreements, both demand and supply are blocked."
To increase private non-apartment supply, the government eased limits on the number of units and floors for urban lifestyle housing and officetels and improved building regulations such as sunlight access.
However, there are views that easing building regulations alone will not be enough to restore non-apartment supply and the housing ladder function. They say construction and acquisition finance, including PF and business loans, should be improved alongside tax support. Given that regulations on multiple-home owners have reduced purchase demand among private rental business operators, some point to the need to improve systems on the demand side as well.
Seo Jin-hyeong, a professor of real estate law and administration at Kwangwoon University, said, "With the three lease laws, policies centered on one household owning one dwelling, and strengthened regulations on multiple-home owners overlapping, it has become difficult for private rental business operators to enter the market," adding, "Without improving these policies together, it will be hard to expand non-apartment supply." He went on, "Loan regulations also need to be selectively eased after weighing business feasibility and supply effects."
The Ministry of Land, Infrastructure and Transport (MOLIT) is discussing ways to expand non-apartment supply with related ministries, while also reviewing ways to diversify types of rental business operators. Kim Yun-duk, Minister of the Ministry of Land, Infrastructure and Transport (MOLIT), said, "We strongly agree on the need for support from the supplier side for finance for the construction of dwellings," adding, "To actually supply newly built dwellings, there is a shared view that we must resolve construction finance issues, and we are continuing consultations with the Financial Services Commission."