The Decline of New Villas and the Threat to Affordable Housing: Solutions and Concerns

The supply of new villas in Seoul has sharply declined, raising concerns about the future of affordable housing for the city's residents

The supply of new villas in Seoul has sharply declined, raising concerns about the future of affordable housing for the city's residents. Factors such as rental fraud and rising construction costs have led to a 60% decrease in new villa supply compared to last year. This article explores the changes in the housing environment, the government's response, and the potential risks involved.

Recently, the supply of new villas in Seoul has significantly decreased, impacting the housing options available to the city's residents. In the first half of this year, only 3,098 new villas were built in Seoul, representing a 61% drop compared to the same period last year. During the boom years of 2021 and 2022, over 10,000 villas were supplied annually. This sharp decline is largely due to the effects of rental fraud and the reversal of housing prices, which have led to a slowdown in the villa market.

Villa sales typically involve simultaneous purchases and rental agreements, where tenants pay high rental deposits that allow builders to cover construction costs and earn profits. However, the recent downturn in the real estate market has made it nearly impossible to expect any capital gains from villa sales. Additionally, the Korea Housing & Urban Guarantee Corporation (HUG) has reduced the limit on rental deposit guarantees from 150% of the official land value to 126%, putting further downward pressure on rental deposits. This has made "gap investing" much more difficult.

As a result, the decline in the villa market is contributing to a rise in apartment rental prices, creating a ripple effect throughout the housing market. In response, the government introduced the "January 10 Measures," which allow for the exclusion of newly built small homes completed between 2024 and 2025 from the calculation of acquisition, capital gains, and comprehensive real estate taxes. However, the effectiveness of these measures is in question, as they do not provide significant benefits to single-homeowners regarding capital gains and comprehensive real estate taxes.

Industry experts argue for more extensive tax benefits, with fewer restrictions on the size and price of the homes eligible. Kim Hyung-beom, head of policy management at the Korea Housing Builders Association, suggested that small villas under 30 square meters, which are often purchased by retirees for retirement income, should be permanently excluded from the housing count, as they are unlikely to generate significant capital gains.

However, there are concerns that such measures could reignite speculative demand. With many tenants unable to recover their deposits and being forced to extend their contracts, there is a risk that excluding certain homes from the housing count could attract speculative investors back into the market.

The decline in the supply of new villas in Seoul poses a serious threat to affordable housing for the city's residents. While the government has implemented measures to address the issue, questions about their effectiveness and concerns about potential speculative activity remain. It is crucial to develop more balanced policies that can stabilize the housing market while preventing speculation. The effects of these policies and market developments will need to be closely monitored in the coming months.