Public housing, Japan and South Korea
This paper reviews the public housing policies of Japan and South Korea, and considers how the mainland can absorb the housing stock.
In order to cope with the contradiction between housing supply and demand in the process of urbanization, Japan has gradually established the "three pillars" of public housing policy: the Housing Finance Corporation, established in 1950, provides low-interest housing loans for residents with higher income levels; Public housing, which began to be built in 1951, provides public rental housing for low-income groups through new construction and acquisition and lease; The Housing Corporation, established in 1955, builds public housing on the outskirts of the metropolitan area to meet the needs of middle-income groups.
In the 70s, the government funded the establishment of state-owned housing communes. The early housing communes were overly reliant on sales proceeds, limiting their ability to supply public rental housing on a large scale. In order to further increase the supply of public housing, South Korea launched the 2 million housing construction plan in 1988 and strengthened the supply capacity of housing communes through two channels: on the one hand, the National Housing Fund, which was established and managed by the government, increased loans to communes; On the other hand, communes can acquire land from private individuals for public housing construction at a price set by the government. Its $2 million housing programme has built a wide range of public housing to meet the housing needs of different income groups.
According to the 2020 Census, households living in low-cost/public rental housing in mainland China account for about 3.4% of all urban households, compared to the OECD average of 7.0%. Compared with overseas developed economies, the proportion of public rental housing in the mainland is low, and there is more room for improvement. If the proportion of urban households living in public rental housing were to rise to the average of 6.1% in Japan and South Korea, about 755,000 additional public rental housing units would be needed. According to the calculation of 40 square meters per unit, about 30.219 million square meters, about 3.2% of the annual housing sales area in 2023.
In the future, a unified public housing company can be established by the government to increase the supply of public housing and absorb the stock of housing in the market by building or purchasing commercial housing. At present, the average rental yield of 100 cities in mainland China is less than 2.2%, and considering the social attributes of public rental housing, its rental return will be lower than the market yield. Therefore, it is necessary to obtain housing supply through discounted purchases, and create new or existing policy financial institutions to provide long-term, low-cost financing support for public housing companies.
On April 30, the Political Bureau of the Central Committee of the Communist Party of China proposed to "coordinate the study of policies and measures to digest the stock of real estate and optimize the incremental housing". This paper examines the public housing policies of Japan and South Korea and considers how the mainland can absorb the housing stock.
1. Japan's public housing policy
In the 50s of the last century, Japan's economy entered a period of rapid growth after the war, and a large number of people poured into cities, in order to solve the contradiction between housing supply and demand in the process of urbanization, Japan gradually established the "three pillars" of public housing policy to solve the housing needs of high-income, low-income and middle-income groups respectively.
1.1 Housing Finance Corporation
In 1950, Japan established the Government Housing Loan Corporation to provide low-interest, fixed-rate housing loans to residents with higher income levels. Strictly speaking, under the loan of the Housing Finance Corporation, the housing purchased and built by residents is self-owned; However, unlike commercial banks, the Housing Finance Corporation is a financial institution funded by the Japanese government, and its source of funding is the Fiscal Investment and Loan Program of the Ministry of Finance, so it is endowed with a certain public character.
From 1950 to 2007, the Housing Finance Corporation financed the construction of 19.41 million housing units, accounting for about 30% of new housing construction in Japan during the same period, and was the vehicle with the largest housing supply among the three pillars (Kobayashi, 2016). Due to the competition between its business and commercial banks, and the decline in the capacity of the Japanese housing market, the amount of loans from the Housing Finance Corporation began to shrink in 2001, and was replaced by the Japan Housing Financing Agency in 2007.
1.2 Public Housing
Japan passed the Public Housing Act in 1951 to establish public rental housing for low-income groups. Public housing, which is financed by the central government, includes the cost of construction, later repairs, and rent subsidies for low-income groups; Local governments are responsible for building and operating new housing and providing it through new construction, as well as private housing purchased or leased from the market by local governments. In order to protect the rights and interests of low-income groups, public housing sets the income threshold for applicants at the bottom 40% of the income distribution.
Public housing provides housing for low-income groups who have difficulty accessing housing through market channels. However, due to the low price and lottery allocation, the ratio of applicants per public housing in 1989 was about 1:35.5 (Kobayashi, 2016), so it was not possible to meet the housing needs of all low-income groups.
After 1963, the proportion of public rental housing in Japan rose and then declined, reaching about 4.6% in 1963 and peaking at 7.6% in 1983, and then gradually declining. By 2008, the share of public rental housing was about 6.1%.
1.3 Housing Corporation
In the process of urbanization, a large number of new citizens moved into the metropolitan area, they are neither low-income groups but can not afford the high housing prices in large cities, in order to meet the housing needs of middle-income working families in the metropolis, Japan passed the "Japan Housing Corporation Law" in 1955, and created the Japan Housing Corporation (Japan Housing Corporation). When the Japan Housing Corporation was established, three-quarters of the capital was invested by the state and one-quarter by the metropolis. Since its target group is the middle-income group, its subsequent operation does not rely on financial subsidies.
In order to meet the housing needs of new residents in metropolitan areas, the Japan Housing Corporation is responsible for the construction of group plots consisting of 50 or more houses for rent (rent-to-loan housing) or for sale (sub-sale housing). The main areas of the group are Tokyo, Osaka, Nagoya, and Fukuoka metropolitan areas. As of 2013, the Japan Housing Corporation managed a total of 856,000 housing units, of which 478,000 units were located in the Tokyo metropolitan area, accounting for about 55.9% of the total, and only 16.1% of the land in the three metropolitan areas (Kobayashi, 2016).
In the early days, the Housing Corporation was mainly engaged in the development of new towns on the outskirts of the metropolitan area, and in the 60s, the Housing Corporation developed and built a large number of collective housing complexes in the suburbs of the Tokyo metropolitan area and Keihanshin area, such as the famous Tama New Town on the outskirts of Tokyo and Osaka New Town on the outskirts of Osaka. In the 70s, as the problem of housing shortage in urban areas was solved, the housing corporation gradually shifted from new construction to buying and leasing housing from the market; In 2004, it was reorganized into the Urban Renaissance Agency, which is no longer engaged in residential construction and is mainly engaged in urban renewal. As of 2013, about 56% of all housing in the Tokyo metropolitan area was managed by the Urban Regeneration Agency.
2. Public housing in South Korea
South Korea has also experienced rapid economic growth and urbanization, with a large number of people flocking to cities, resulting in a prominent contradiction between urban housing supply and demand. The intensification of contradictions in the 70s further triggered real estate speculation and rising house prices. In order to cope with the housing shortage and stabilize the rise in housing prices, the Korea National Housing Corporation was established in 1972 to undertake the construction of public housing, and the Korea Land Development Corporation was established in 1979. The two communes merged in 2009 to form the Korea Land and Housing Corporation.
In the early days, although the housing commune was fully funded by the government, its operation was based on the model of commercial real estate development and operation, and the source of funds relied on sales proceeds to support construction costs, similar to that of state-owned enterprises. As of 1997, about 68 per cent of the housing communes were still financed by sales and rent collection (Koh, 2004). In addition, in order to recover the cost as soon as possible, the public housing built by the housing commune is mainly for sale, and the public housing for rent is usually converted to sale after a short period of letting. Between 1971 and 1980, only 3.5 per cent of new housing was public rental housing (Koh, 2004), resulting in a persistent shortage of public rental housing.
In order to further increase the supply of public housing, South Korea launched the Two Million Housing Drive in 1988, with the goal of providing two million new homes between 1988 and 1992 and building a new city outside Seoul. In order to solve the problem of insufficient funds of the housing commune, its supply capacity has been strengthened through two channels. On the one hand, the National Housing Fund, which is funded and managed by the government, has increased its lending to communes. On the other hand, the government provided more developable land to the communes[1], and the communes could acquire land from private individuals for public housing construction at a price set by the government, while private real estate developers were restricted from participating in residential land development (Kim & Park, 2004).
The 2 Million Housing Plan takes a segmented approach and implements different public housing policies for different income groups. These include permanent low-rent housing for the lowest income groups, small-sized saleable housing, and public rental housing for low- and middle-income groups, as well as larger housing for the middle class. Permanent low-rent housing is mainly provided to the unearning group, and the rent is only 25% of the market price, accounting for about 18.6% of the public rental housing; The target group for 50-year public rental housing is the social assistance recipient and the disabled, accounting for about 8.6% of the total. The largest supply is five-year public rental housing, accounting for nearly 60%, mainly for low-income families with a certain amount of savings. The increase in the supply of public housing catering to different income groups has effectively alleviated the contradiction between supply and demand, and suppressed the rise of housing prices to a certain extent.
3. Enlightenment for the mainland
3.1 There is room for improvement in the proportion of public housing in the mainland
The experience of Japan and South Korea shows that public housing plays an important role in alleviating the contradiction between urban housing supply and demand, narrowing the housing gap between different income groups, and regulating real estate countercyclically. According to the 2020 Population Census Yearbook, there are about 713,000 households living in low-rent housing/public rental housing in mainland cities, accounting for about 3.7% of all urban households. If towns are included, there are about 996,000 households living in low-rent/public rental housing in urban areas, accounting for about 3.4 per cent of the total number of urban households. Around 2020, the share of public rental housing in South Korea and Japan was 8.9% and 3.2%, respectively, and the average for OECD economies was 7.0%. Compared with overseas economies, the proportion of public housing in the mainland is relatively low, and there is more room for improvement in the future.
On April 30, the Political Bureau of the Central Committee of the Communist Party of China proposed to "study the policy measures to digest the stock of real estate and optimize the incremental housing in a coordinated manner". In terms of stock, with the weakening of commercial housing sales in recent years, the area of commercial housing for sale has been rising, and the inventory pressure in the real estate market is greater, considering that the private sector is under great pressure to repay debts and has limited willingness and ability to increase leverage, at this time, the counter-cyclical adjustment role of government departments in the real estate market can be brought into play, and the stock can be digested by acquiring commercial housing in the market to convert into rental housing and affordable housing, and at the same time solve the housing problem of low-income groups. According to the 2020 census data, there are 28.949 million urban households in mainland China, and if the proportion of urban households living in public rental housing is raised to the average level of 6.1% in Japan and South Korea, about 755,000 public rental housing units will need to be added, which is about 75.9% of the existing public rental housing stock. According to the calculation of 40 square meters per unit, about 30.219 million square meters, about 3.2% of the annual housing sales area in 2023. In terms of increment, since the adjustment of real estate prices in 2021, the area of new residential construction has shrunk significantly, and the average area of new construction since 2023 is only equivalent to 49.7% of the level of 2019. In 2023, the household ratio in mainland China will be close to 1.0, and the future housing increment may bid farewell to the extensive quantitative growth model, and meet the people's new expectations for high-quality housing by improving the quality of new housing and optimizing the supply structure. Increase the construction and supply of affordable housing and public rental housing to solve the housing problem of low-income groups, and promote the transformation of urban villages to improve the quality of living of residents.
3.2 Lessons from the experience of Japan and South Korea in the design of public housing mechanisms
From the perspective of the main body of supply, because public housing has certain public welfare attributes, it is not suitable for the private sector to be completely supplied. In both Japan and South Korea, the government has established a public institution to be responsible for land development and the construction and operation of public housing. The Japan Housing Corporation is jointly funded by the central government and local governments, and the local governments in the metropolitan area are responsible for the day-to-day operation. The South Korean government supplies land to state-owned housing communes, which are responsible for building and managing public housing. For the mainland, it may be possible to set up a unified public housing company funded by the government to be responsible for the construction and purchase of commercial housing from the market as the main supplier of public housing.
From the perspective of funding sources, the target group of public housing is the low- and middle-income group, which needs low-cost long-term financial support. In Japan, public housing is mainly subsidized by the national government, and the financial support comes from postal savings and pensions, which increases the burden of fiscal expenditure. South Korea's public housing was overly reliant on cash flow from sales and rentals in its early days, which affected its ability to provide public housing on a large scale. The experience of public housing in South Korea is more worthy of reference, that is, financial support from policy financial institutions and low-cost land acquisition through differentiated policies. At present, the average rental yield of 100 cities in mainland China is less than 2.2%, and considering the social attributes of public rental housing, its rental return will be lower than the market yield. If the market-based acquisition is fully adopted, the rental return cannot cover the financing cost, so it is necessary to obtain housing supply through discounted acquisition and obtain low-cost financing through policy financial instruments.
The "Excerpts from Xi Jinping's Discourse on Financial Work" published in 2024 mentions "studying the establishment of housing policy financial institutions". In the future, new or existing policy-based financial institutions could be established to provide financing to public housing institutions to support the construction or acquisition of housing.
Bibliography:
1. Kim K. & Park M.，Housing Policy in the Republic of Korea，ADBI Working Paper Series，2016.
2. Koh C., Overview of Housing Policies & Programs in Korea, Korea Housing Institute, 2004.
3. You S., Housing Finance Mechanisms in Republic of Korea, The Human Settlements Finance System Series, 2009.
4. Kobayashi M., The Housing Market and Housing Policies in Japan, Asian Development Bank Institute, 2016.
5. Dai Erbiao and Li Yan, Public Housing Policies in Japanese Cities: Achievements, Reforms, and Their Implications for China, China Urban Studies, 2012.
Annotation:
[1] Although South Korea has private ownership of land, the Residential Land Development Promotion Act promulgated in 1981 became a turning point in the transition from private ownership to public ownership of land in South Korea, and the government occupies a dominant position in the management of land development and use.
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