Housing Welfare Policy for Low-Income Households in Korea

Transcription

1 Housing Welfare Policy for Low-Income Households in Korea Hye-seung Kim Research Fellow Korea Research Institute for Human Settlements 1. Introduction Housing welfare can be defined as the aggregate responsibility of fulfilling the basic needs and desires of the population in general in relation to housing. In most countries, governments are making various efforts to fulfill the people s basic housing needs and desires. A set of such actions or processes taken by the government to address the housing welfare problems are collectively called the housing welfare policy. Each country s housing welfare policy pursues different goals with varying emphasis on the policy means based on the political orientation of the government, income level of the people, characteristics of the existing housing problems, and dynamic relationship between civil society, market, and state. The government s effort to resolve the housing welfare problem can primarily be divided into supply side and demand side instruments. Supply side instruments are sometimes referred to as bricks and mortar or object subsidies, whereas demand side forms of assistance are often called personal or subject subsidies. 1 While supply side instruments reduce the price of housing, demand side subsidies help make housing affordable for individual consumers. Supply side support includes low interest or guaranteed loans, capital grants, and tax relief for suppliers of housing. Rent controls or regulations on restricting rents to below the market clearing levels are also forms of supply-side intervention to provide consumers with low-cost housing services. Demand side support includes housing allowances and low interest loans for consumers of housing. On the other hand, the government s effort can be divided into direct/indirect support. Direct support consists of transfer payments 2 or other subsidies provided directly as housing assistance; the housing benefit, housing association grant, and house renovation grants of the UK are examples of direct subsidy. Indirect interventions mainly involve tax benefits. The abovementioned direct and indirect support may be provided to either consumers or suppliers of housing. 3 Such housing support should be specialized and differentiated based on the economic capacity and housing desire of the policy subjects. In Korea, both supply and demand-side housing support forms and direct and indirect housing support forms exist, e.g., public rental housing supply, housing benefit, loans for Jeonse 4 tenants, housing improvement fund support, mortgage support, and mortgage interest payment through salary deduction. 1 Oxley, M. (1987). Aims and efforts of housing allowances in Western Europe. In W. van Vliet (ed.) Housing Markets and Policies Under Fiscal Austerity. London: Greenwood Press. 2 Income redistribution or related benefit such as supplemental security provided by the government 3 Kemp, P. A. (1997). Comparative Study of Housing Allowances. London: The Stationery Office. 4 In Korea, most tenants rent houses with a peculiar form of rent called Jeonse. It is a system wherein tenants pay 50 70% of the housing price as deposit at the time of concluding the contract, and they get that money back at the end of the contract. It is different from the monthly rental system. Since the deposit of Jeonse is paid back when the rental period ends, this system corresponds to the support system of the National Housing Fund.

2 After briefly examining the housing welfare policy trend in Korea, this study shall deal with key housing support programs particularly the public rental housing supply, housing cost subsidy, and housing improvement support programs developed based on the housing welfare policy for low-income households. Finally, it shall draw conclusions based on the analysis of accomplishments and limitations of such housing support programs and come up with suggestions on the future course of action. 2. Overview of the Housing Welfare Policy in Korea Direct intervention by the Korean government to address the housing welfare problems started with the 2 Million Housing Units Construction Plan ( ), which included the implementation of the housing supply strategy and introduced the concept of permanent public housing supply. Prior to the establishment of this plan, the housing policy was formulated based on the housing filtering theory; until the late 1980s, housing had been supplied mostly by the private sector to facilitate the creation of demand for new housing in the upper-middle class with a certain level of housing affordability rather than in the low-income class. The policy was anticipating the upward shift of the housing condition for the lowincome class. The government supplied permanent public rental housing, long-term (LT) rental housing, smallscale housing for sale, labor welfare housing, and employees rental housing through the 2 Million Housing Units Construction Plan. It also supplied public rental housing (50-year/5-year rental), public housing for sale, labor welfare housing, and employees rental housing through the 5-Year New Economic Plan (1993~1997) as part of its efforts to improve the housing welfare of low-income households. Note, however, that the fundamental objective of the housing policy had lain on the quantitative expansion of housing supply to address the problem of serious housing shortage; the government had not fully performed its role as a public sector agent in terms of housing welfare. 5 In 2003 when the quantitative housing problem was somewhat addressed when a housing distribution ratio of 101.2% was recorded, the government announced the Housing Welfare Support Plan for Different Income Groups (summarized in Figure 1). 6 Furthermore, the minimum housing standards were institutionalized as a policy indicator to consider the quality of housing alongside the housing distribution ratio as a quantitative indicator (promulgated in June 2004). The Comprehensive Housing Policy Plan (2003~2012) was established in January 2004 to shift the institutional focus from housing quantity to housing welfare (refer to Tables 1 and 2). On the other hand, the public sector s role was expanded in 2007 through the 10-year Housing Welfare Blueprint (refer to Figure 2). 7 Such blueprint increased the total weight of LT rental housing to 20%, promoted the supply of rental housing of different sizes, and introduced the housing voucher system not only to ease the housing cost burden but to offer more choices to low-income households as well. 5 Yoon, Juhyun and Hye-seung Kim (1997). Evaluation and Reform of the Housing Welfare Policy. Korea Research Institute for Human Settlements. 6 Housing Welfare Support Plan for Low-Income Households. (May 28, 2003). 7 Measures for Strengthening the Public Sector s Role in Stabilizing the Housing Market and Improving Housing Welfare. (January 31, 2007).

3 Group Characteristics Support Measures 10 th Income Percentile 20th~40 th Income Percentile 50th~60 th Income Percentile 70 th or Higher Income Percentile ㆍ Difficulty in paying rent ㆍ Difficulty in purchasing a housing property ㆍ Ability to purchase a housing property with government support ㆍ Ability to purchase a housing property ㆍ Expansion of housing assistance ㆍ Supply of small national rental housing units ㆍ Purchased housing for lease of multi-household housing units ㆍ Revitalization of repair and improvement of low-quality housing units ㆍ Concentrated supply of National Rental Housing ㆍ Expansion of Jeonse deposit loans at subsidized interest rates ㆍ Low-cost small and medium-sized housing units ㆍ Expansion of fund support for housing purchase ㆍ Accommodation of market functions ㆍ Financial support through tools such as housing mortgage Maintaining the Basic Condition for Housing Price Stabilization <Figure 1> Housing Welfare Support Plan for Different Income Groups (May 28, 2003) <Table 1> Public Support Subjects & Programs in the Comprehensive Housing Policy Plan (2003~2012) Subject Income Group Subject Household Among households in the 30 th income percentile and do not meet the Minimum Preferential Support Housing Standards, those whose housing cost to income ratio vis-à-vis living in Subject Group houses in fulfillment of the Minimum Housing Standards exceeds 30% Belonging to the 40 th income percentile, the Direct Support Subject Group does not Direct Support Subject meet the Minimum Housing Standards; they should not be the Preferential Support Group Subject Group Households in the 40 th ~ 60 th income percentile and can qualify as upper-middle Indirect Support Subject class with low-cost housing supply and/or other housing support even though Group they currently do not meet the Minimum Housing Standards Source: Sohn, Gyeong-hwan, Hye-seung Kim, et al. (2003). Study on Establishing the Comprehensive Housing Policy Plan (2003~2012). p. 136.

4 <Table 2> Housing Welfare Support Programs for Different Income Groups by the Comprehensive Housing Policy Plan (2003~2012) Classification Owned Rented 1-person Household >2-person Household 1-person Household >2-person Household Preferential Support Subject Group Housing Repair SupportⅠ Rent SubsidyⅠ Direct Housing Repair National Rental National Rental Urban Rent SubsidyⅡ Support Support Ⅱ Housing Supply Housing Supply Subject Group Rural Housing Repair Support Ⅱ Rent SubsidyⅡ Indirect Support Subject Group 10-yr Rental Housing Supply, Housing Purchase & Remodeling Support Source: Sohn, Gyeong-hwan, Hye-seung Kim, et al. (2003). Study on Establishing the Comprehensive Housing Policy Plan (2003~2012). p.137. Accommodation of market functions Financial support through tools such as housing mortgage Key Support Details Fund support for housing purchase Medium-sized and large rental housing supply Small and medium-sized rental housing supply Long-term public rental housing supply (national rental housing, governmentpurchased/leased rental housing, etc.) Housing voucher, loans for Jeonse tenants Characteristics Poor housing condition/low housing affordability Difficulty in purchasing a housing property Ability to purchase a housing property with government support Ability to purchase a housing property Income Group 10 th 20 th Income Income Percentile Percentile 30 th Income Percentile 40 th Income Percentile 50 th Income Percentile 60 th Income Percentile >70 th Income Percentile <Figure 2> Housing Welfare Blueprint by Income Deciles for Year 2017 (Jan. 31, 2007)

5 3. Provision of Public Rental Housing In Korea, public rental housing refers to rental housing built with funding from the government, National Housing Fund (NHF), or public land acquisition assistance. In particular, permanent public rental housing, 5-year/10-year/50-year public rental housing, national rental housing, employees rental housing, government-purchased rental housing, and government-leased rental housing are subjects of housing policies for low-income households. The following describes the background, inventory, policy support status, and tenant criteria related to public rental housing for low-income households: 1) Background and Inventory Status of Public Rental Housing (1) Permanent Public Rental Housing The Tae-woo Noh Administration announced the 2 Million Housing Units Construction Plan in 1989 in response to the increasing instability in the housing market accompanying the skyrocketing Jeonse deposit rates in the 1980s. This plan consisted of the construction of 250,000 units of permanent public rental housing. Permanent public rental housing was built as the first public rental housing in Korea, with 85% of the construction costs subsidized by the government. A total of 190,000 small housing units with floor space of 23.1~42.9m 2 and designed to provide low-income households in city areas with housing stability were constructed between 1989 and New housing units for permanent public rental have not been constructed since 1992, however; new tenants can enter the facilities only in case of a vacancy following the exit of existing tenants. (2) 5-yr/10-yr/50-yr Public Rental Housing 5-year/50-year public rental housing was supplied to underprivileged households left out by the permanent public rental housing project. In the beginning ( 92~ 93), such form of housing was covered by the financial support from the government. In 1994, however, financial support for the construction of 50-year public rental housing shifted to NHF. The 50-year public rental housing is the same as the permanent rental housing since units cannot be put on sale after a set period. In contrast, the 5-year public rental housing can be put on sale after a prescribed period of rental (5 years or less). Most of the public rental housing construction cases since 1996 involved 5-year public rental housing, 8 leaving 50-year public rental (redevelopment rental housing) to cater to evictees only. The Moo-hyeon Roh administration excluded 5-year public rental housing from the government s land supply plan related to housing development in Instead, LT rental housing development was given greater priority in land supply by establishing the 10-year rental housing supply plan. 5-year/10-year public rental housing guarantees housing stability during the prescribed rental period and allows sales transfer afterward to offer greater housing stability to middle-class households. (3) National Rental Housing National rental housing is constructed or acquired with support from the central or local government or NHF in accordance with the Housing Act for the purpose of renting it for 30 years or 8 Hong, In-wook, et al. (2003). Adjustments in Public Housing-related Legal Infrastructure. Korea Center for City and Environment Research. p.11.

6 more. 9 The system was first introduced in 1998 following the economic crisis that led to an increase in unemployment and subsequent rise in housing uncertainties for low-income households. At least 30% of the construction cost for 10-year/20-year public rental housing (national rental housing) was provided using the government budget to fulfill the need of low-income households that cannot use the 5-year public rental housing. 10 The construction project plan for 120,000 units was approved between 1998 and The 1 Million National Rental Housing Units Construction Plan (2003~2012) was later established, with the rental period extended to 30 years in Enacted in 2003, the Act on Special Measures for National Rental Housing, Etc., regulates the land acquisition, construction financing, and project approval processes and stipulates the establishment of the National Rental Housing Construction Committee. This Act became the institutional basis for promoting the construction of national rental housing. There are currently three types of national rental housing being constructed: Type I, with floor space of less than 50 m2; Type II, with floor space of 50~60 m2, and; Type III, with floor space of more than 60 m2. The cost distribution scheme between the government, NHF, etc., differs according to the abovementioned types. Existing housing structures or rental housing structures repossessed by banks can be purchased and turned into national rental housing facilities. (4) Employees Rental Housing Employees rental housing 12 is a program developed by the government in 1990 to enhance housing stability for working-class households. New housing is purchased or constructed by an employer with support from NHF for lease by its employees. When the program was first launched, the required rental period for employees rental housing was 50 years. With the enactment of the Rental Housing Act, however, the system was changed, i.e., required rental period set to 5, 10, or 50 years at the time of registration. In short, employees rental housing can be used as either LT rental housing or housing facilities for sale. (5) Government-Purchased Rental Housing This project involves purchasing existing housing structures and leasing them at a low rate to allow the lowest-income households to live in their current living quarters (in city areas) given their current level of income. Ultimately, it seeks to interlink the housing and social welfare services and realize housing stability for low-income households; thus helping them lead self-sufficient lives. 13 The project is executed by Korea National Housing Corporation (KNHC) and public corporations (local), targeting multi-unit houses, low-rise condominiums, etc. (unit floor space of 85 m 2 or less). 9 Article 2, Act on Special Measures for National Rental Housing, Etc., December Gweon, Byeong-jo (2006). Progress with the national rental housing policy and role of the public sector. National Rental Housing White Paper. Housing & Urban Research Institute. pp. 6~7. 11 Gweon, Byeong-jo (2006). Progress with the national rental housing policy and role of the public sector. National Rental Housing White Paper. Housing & Urban Research Institute. pp. 8~ Employees rental housing is one type of working-class housing that can be divided into labor welfare housing built and sold by a business or an employer and employees rental housing built or bought by an employer from another business for lease to its employees. 13 Ministry of Construction & Transportation. Guidelines for Government-Purchased Rental Housing Project Processing (August 3, 2005).

7 Purchased housing is supplied in the forms of general household rental, community household rental, and single-person household rental. 14 A total of 503 units were supplied through the pilot implementation in 2004; 4,112 and 6,059 units were supplied in 2005 and 2006, respectively. At least 6,500 units will be supplied every year between 2007 and (6) Government-Leased Rental Housing This project involves securing existing housing structures through Jeonse contracts and leasing them at a low rate to allow the lowest-income households to live in their current living quarters (in city areas) given their current level of income. Ultimately, it seeks to interlink the housing and social welfare services and realize housing stability for low-income households; thus helping them lead selfsufficient lives. The project is executed by KNHC and public corporations (local), targeting housing structures (incl. single-detached/multi-unit houses and apartment buildings) with unit floor space of 85 m2 or less. Tenants can personally select housing units in any location within the local district of their current residence considering their income level and lifestyle. A total of 500 units were supplied through the pilot implementation in 2005; 5,589 units were supplied in The government plans to supply 5,800 units every year between 2007 and (7) Status of Rental Housing Inventory The inventory of statutory rental housing in Korea has steadily increased since 1998 (593,000 units in ,335,000 in 2007). Statutory rental housing can be defined as rental housing that has acquired rental authorization (incl. temporary use) or passed the structural audit. Note that the inventory of LT public rental housing with the required rental period of 10 years or more has nearly doubled to 461,000 between 1998 and 2007 (refer to Figure 3 and Table 3). <Table 3> Status of Rental Housing Inventory (1,000 units) Total ,021 1,046 1,150 1,243 1,330 1,335 LT (Permanent/50- yr/national) Rental Housing yr Public/Employees Rental Housing Purchased Rental Housing Note: Purchased rental housing refers to the housing offered for lease after the rental agency acquires the property right through purchase, etc. Source: Ministry of Land, Transportation, and Maritime Affairs 14 Ministry of Construction & Transportation. Housing Operation Handbook. August 2005.

8 Status of Rental Housing Inventory (1,000 units) (1,000 units) LT (Permanent/50-yr/National) Rental Housing 5-yr Public/Employees Rental Housing Purchased Housing Rental Source: Ministry of Land, Transportation, and Maritime Affairs <Figure 3> Status of Rental Housing Inventory The inventory of LT public rental housing consists of 190,000 units of permanent rental housing, 100,000 units of 50-year public rental housing, and 155,000 units of national rental housing as of the end of 2007 (refer to Table 4). <Table 4> Status of LT Public Rental Housing Inventory (2007) Others (governmentleased rental housing, Permanent Rental 50-yr Public Rental National Rental Total (1,000 units) Housing Housing Housing etc.) Source: Ministry of Land, Transportation, and Maritime Affairs Note, however, that public rental housing only accounted for 8.1% of the total housing inventory in Korea as of There were a total of 13,534,000 units of housing inventory as of 2006; the public rental housing inventory was calculated by subtracting the purchased rental inventory from the statutory rental housing inventory in Table 3. This figure is considerably lower than the 20~30% in major developed countries (refer to Table 5). The situation is worse for LT public rental housing with a required rental period of 10 years or more; it accounted for only 3.0% as of As such, the Korean government plans to increase the rental housing inventory steadily by supplying various LT rental housing facilities in the forms of national rental housing and 10-year public rental housing. <Table 5> Ratio of Public Rental Housing in Major Developed Countries ( 99~ 00, %) Country UK Netherlands Germany France (%)

9 2) Policy Support for Rental Housing Supply The government is offering the preferential and/or low-cost supply of land, government funding, and NHF support as well as tax incentives related to the supply of rental housing. (1) Preferential and Low-cost Supply of Land According to the Guidelines for Land Development Processing and Article 7 of the Rental Housing Act, 20% (30% in the Greater Seoul Area) or more of the construction lot for multi-unit housing structures should be supplied for the construction of rental housing with unit floor space of 85m2 or less. Furthermore, 25% of the construction lot for multi-unit housing structures should be supplied for the construction of national rental housing. The supply ratio for LT rental housing (10-year rental period) is set at 5% or more for those with unit floor space of 85m2 or less and at 5% or more for those with unit floor space of 85m2~149m2. In addition, land for rental housing construction is supplied at a lower price than that for the construction of housing for sale, i.e., 60~ 85% of the construction cost, with some differences according to size and area as shown in Table 6. <Table 6> Low-cost Supply of Building Lots for Different Housing Project Types (unit: supply price to construction cost ratio) Other Greater Seoul Housing Type Size of Housing Unit Busan Metropolitan Other Areas Area Cities Rental Housing Housing for =<60 m2 60% 60% 60% 60% >60, =<85 m2 85% 80% 70% 60% >85, =<149 m2 Appraised Value =<60 m2 95% 90% 90% 80% Sale 60 ~ 85 m2 110% 100% 100% 90% Source: Ministry of Construction & Transportation. (2004) Guidelines for Land Development Processing ; Ministry of Construction & Transportation. (2005). Housing Operation Handbook. p.172. (2) Government Funding and NHF Support Government support for rental housing is provided through either direct investment in the construction of rental housing or provision of financial loan to NHF. Direct financial investment in rental housing construction is made for permanent public rental housing and national rental housing projects. In the case of permanent public rental housing, 85% of the construction cost was shouldered by the government; 10~40% of the construction cost was financed using the government budget for national rental housing based on the housing type. To date, there is no direct contribution to NHF from the government; loan support is provided through special budget accounting instead. 15 Except the government support for the construction of national rental housing, NHF currently 15 Kim, Geun-yong, et al. (2004). Study on Measures for Improving the Public Rental Housing Distribution and Management System. Korea Research Institute for Human Settlements. p.18.

10 assumes most of the policy financing role related to rental housing supply. Public Rental <Table 7> Scheme for Construction Cost Distribution by Rental Housing Type Classification Cost Distribution Main Contractor Central Government - Central/Local government: 85% Permanent Rental KNHC - Tenants: 15% Local Government 50-yr Public Rental National Rental 5-yr/10-yr Rental Housing Employees Rental Housing Purchased Rental Housing ㆍ Construction in 92~ 93 - Government budget: 50% - NHF: 20% - Tenants: 30% ㆍ Construction since 94 - NHF support by size - Government budget: 10~40% - NHF 40~50% - Construction company: 10% - Tenants: 10~30% - NHF support by size (=<85 m2) Max. of KRW55 million per small unit and KRW75 million per medium-sized unit - Max. of 149 m2 land supply Central Government KNHC Local Government KNHC Local Government KNHC Public Corporations (local) Private Businesses KNHC Public Corporations (local) (Same as above) Private Businesses, Employers Individual/Corporations - Internal fund and rental deposit (NHF KNHC support of max. of KRW60 million per unit) Public Corporations (local) Source: Ministry of Construction and Transportation (2005). Housing Operation Handbook. p.168. The scheme for financial burden distribution for different national rental housing types is summarized in Table 8. The size of housing unit in each housing type and the subsequent cost distribution ratio were changed as of April 27, <Table 8> Distribution of Financial Burden According to the Different National Rental Housing Before Now Types Government National Housing Classification Tenants Main Contractor Budget Fund Type I (46~50m 2 ) 40% 40% 10% 10% Type II (53~60 m 2 ) 20% 40% 30% 10% Type III (63~66 m 2 ) 10% 40% 40% 10% Type I (36~50 m 2 ) 40% 40% 10% 10% Type II (53~60 m 2 ) 20% 45% 25% 10% Type III (63~80 m 2 ) 10% 50% 30% 10% Source: Ministry of Construction and Transportation (2005). Housing Operation Handbook. p.172. Various support tools are also available, such as the reduction or waiving of acquisition tax and property tax based on the size of the housing units when businesses build or acquire rental housing structures. 3) Tenant Criteria for Public Rental Housing

11 in Table 9. The tenant criteria for public rental housing vary by housing type; the key criteria are summarized <Table 9> Tenant Criteria for Public Rental Housing Type Tenant Criteria Head of household without any housing property and meets any of the following criteria: 1 Support recipients as per the National Basic Livelihood Security Act; 2 National Patriots or Veterans or their surviving family members and whose income is less than the level stipulated by the National Basic Livelihood Security Act; 3 Comfort Women ; 4 Female heads of underprivileged households; 5 North Korean refugees; 6 Disability Permanent Certificate Holders (incl. the spouse and the household head of the mentally disabled Rental Housing or persons with Class 3 neuro-developmental disability or higher); 7 Immediate family members of a person aged 65 years or older (only when registered as part of the same household in the citizen s registry) and whose income is less than the level stipulated by the National Basic Livelihood Security Act; 8 Persons declared eligible by the city mayor, provincial governor, or Minister of Construction & Transportation, and; 9Housing subscription deposit account holders 5-yr/10-yr/50- Head of households residing in the housing construction region in the relevant year; yr Public priority given to housing subscription deposit account holders; evictees and National Rental Housing Patriots and Veterans prioritized for the 50-year public rental housing Lack of housing property and possession of housing subscription deposit account are considered key tenant criteria given a set level of average monthly household income (per urban employee household) by housing type. - Housing unit with floor space of less than 50 m2 Household heads without any housing property and who declared an average monthly income of 70% or less than that of an urban employee-led household in the previous year (preferential supply to households with average monthly income of 50% or less than that National of an urban employee-led household) Rental Housing - Housing unit with floor space of 50 m2~60 m2 Household heads without any housing property and who declared an average monthly income of 70% or less than that of an urban employee-led household in the previous year while holding a housing subscription deposit account - Housing unit with floor space of more than 60 m2 Household heads without any housing property and who declared an average monthly income that is equal to or less than that of an urban employee-led household in the previous year while holding a housing subscription deposit account Employees of a business with more than 5 employees without any housing property; number of years of service in the company, size of family (more weight given when Employees supporting immediate family members aged 60 or older), wage level, period of lacking Rental Housing any housing property, and housing subscription deposit account holding reviewed as tenant criteria Government- Purchased Rental Housing Household heads without any housing property (excl. residents of permanent public rental housing) and residing in the area of the given city/gun gu and who are support recipients or other underprivileged persons as defined by the National Basic Livelihood Security Act or who meet the livelihood protection criteria as stipulated by the Minister of Gender Equality Government- Leased Rental (Same as above) Housing 4. Support for Housing Expenses Demand-side housing support programs for low-income households include the housing benefit program for support recipients as per the National Basic Livelihood Security Act and two kinds of housing loans supported by NHF to assist Jeonse tenants: one is the loan for low-income households, and the other is the loan for working-class and middle-class households.

12 1) Housing Benefit Rent, maintenance cost, and other costs incurred in the name of housing stability are subsidized as per the National Basic Livelihood Security Act in the form of housing benefit. The minimum housing cost is separated from the minimum cost of living and paid as housing benefit. The housing benefit operation is based on the principle of supplementary benefit to guarantee minimum housing cost to lowincome households. The following rule is observed in calculating the proportional benefit in the range of KRW0 ~ minimum housing cost for each household: Per Household Livelihood Benefit (79.35%) + Housing Benefit (20.65%) = [Cash Transfer Household Income] (100%) <Table 10> Housing Benefit Ceiling for 2008 (unit: KRW/month) Household Size 1 Person 2 Persons 3 Persons 4 Persons 5 Persons 6 Persons Minimum Cost of Living 463, ,319 1,026,603 1,265,848 1,487,878 1,712,186 Housing Benefit Ceiling 79, , , , , ,292 Note: The housing benefit ceiling is calculated as the per-household minimum housing cost ( % of the minimum cost of living). Source: Ministry of Health, Welfare, and Family Affairs Recipients in the Owned category are given the amount derived by subtracting the per household housing materials benefit in Table 11 as housing benefit. Housing materials benefit is given through a program designed to improve the living environment of households having their own housing properties and encourage the recipients participation in the Home Improvement Campaign. Under the assumption that 1 repair demand occurs every 3 years, subject households are provided with housing materials benefit at least once every 3 years. Inspection and repair services are commissioned to selfsupporting centers and self-supporting communities to revitalize one of the self-supporting projects (House Repair Helper Campaign). <Table 11> Housing Materials Benefit for 2008 (unit: KRW/month) Household Size 1 person 2 persons 3 persons 4 persons 5 persons 6 persons 7 persons Housing Materials Benefit 7,000 12,000 17,000 21,000 25,000 29,000 34,000 Note: Benefit increase by an increment of KRW3,000 per additional family member in the case of households with 8 or more members Source: Ministry of Health, Welfare, and Family Affairs 2) NHF Housing Loans for Jeonse Tenants NHF housing loans for Jeonse tenants can be divided into one that specifically targets low-income households and loan targeting working-class and middle-class households.

13 The first program is designed to assist low-income tenants who enter into Jeonse contracts for a set amount or less. The loan amount is determined within 70% of the total amount of deposit (KRW21~35 million) and offered at a low annual interest rate of 2% for installment repayment for the next 15 years. The second program targets heads of households wherein all members hold no housing properties and the total annual income is KRW30 million or less. The loan amount is determined within 70% of the total amount of deposit (up to KRW60 million) and offered at an annual interest rate of 4.5%. The loan needs to be repaid after 2 years, although the maturity can be given up to 2 extensions to make the loan period as long as 6 years. The subjects and details of the NHF housing loan program for Jeonse tenants are listed in Table 12. Classification Subjects <Table 12> Subjects and Details of the NHF Lease Deposit Fund Support Program Loans for Low-Income Households Head or acting head (excl. head of 1-person household) of a household wherein all members hold no housing properties; has signed a Jeonse contract for a set amount or less as of the application date, should be a tenant from a lowincome group, has secured a recommendation from the head of the given local governing unit (Special Metropolitan City: KRW50 million; Metropolitan City/Greater Seoul Area: KRW40 million; Other Areas: KRW30 million) Loans for Working Class/Middle- Class Households Head of household wherein all members hold no housing properties and the annual income is KRW30 million or less as of the application date Subject Housing Housing unit with floor space of 85 m2 or less Housing unit with floor space of 85 m2 or less Within 70% of amount of the Amount determined by the bank with NHF Jeonse deposit (max. of KRW60 access based on the standards considering the Per Household million) applicant s annual income, debt, credit rating, Loan Ceiling (max. of KRW80 million for and security type within the 70% limit of amount households with 3 or more of Jeonse deposit in a given area children) Interest Rate 2.0% per year 4.5% per year Loan Period and Repayment Method Installment basis, repayment for 15 years One-time payment within 2 years (2 extensions allowed for a max. of 6 years until repayment) Application Period Security Within 3 months of the move-in date specified in the Jeonse contract or citizen s registry transfer date, whichever is earlier 3 months within the contract renewal date (conversion date in case the contract was changed from monthly rental to Jeonse) in case an existing contract was renewed Financial Credit Certificate for Housing Funds or Co-Signer (landlord s return pledge can be used by persons whose credit guarantee certification has been denied) Source: Ministry of Land, Transportation, and Maritime Affairs website (same as that on the left) (same as that on the left)

14 5. Housing Improvement Support The government s key housing improvement support programs targeting homeowners include the Housing Improvement Fund Support for Farming and Fishing Villages and the Residential Environment Improvement Fund Support. The Housing Improvement Fund Support for Farming and Fishing Villages offers loans to homeowners residing in farming or fishing villages. The loan should be used to build, expand, or repair a housing structure with floor space of 100 m2 or less. Loans of KRW40 million and KRW20 million are made available for building and expanding or repair works, respectively. Such loans are offered at an annual interest rate of 3.4% and should be repaid in 15 years with a 5-year grace period. A full repayment can be made at the time of housing sale; otherwise, interest at a market rate of 5.5% shall be charged. The Residential Environment Improvement Fund Support helps individual land or housing structure owners or their union build or remodel housing structures. Housing structures located outside the designated Residential Environment Improvement Project Zone have also become eligible for such support since The subject should be a housing structure with floor space of 85 m2 or less. KRW40 million per unit for single-detached houses, KRW20 million per unit for multi-unit houses wherein households living in each unit get to own their own unit, and KRW15 million per household for multi-unit houses wherein a landlord owns all units of a house are offered as loan for building a new house; loans for remodeling amount to half of that for building. Offered at an annual interest rate of 3%, the loan needs to be repaid on an installment basis for 19 years with a 1-year grace period. The loan for building or remodeling a multi-unit house wherein a landlord owns all units of a house is to be repaid within 1 year Evaluation & Conclusion The housing support programs currently run by the government wielded a positive effect on easing the housing cost burden (refer to Tables 13 and 14), improving the housing quality, and enhancing the housing satisfaction level with some differences between the programs. Note, however, that the programs were found to have some problems related to performance and equity of provision. A previous study 17 showed that the actual rent payment for a household living in public rental housing was 23~65% of the market rate. Indeed, public rental housing programs have significantly contributed to lowering the housing cost level. 16 Presidential Committee on Social Inclusion. Evaluation of and Task for the Participatory Government s Housing Welfare Policy. September Kim, Hye-seung, et al. (2004). Study on Establishing the Housing Welfare Support and Delivery System. Korea Research Institute for Human Settlements. P.38.

15 <Table 13> Actual Rent Payment & Market Rate of Rent for Different Rental Housing Types in Gyeonggi-do (unit: KRW10,000/month, %) Classification Actual Rent Payment per Household (A) Market Rate of Rent per Household (B) Permanent Rental National Rental 5-yr Public Rental 50-yr Public Rental A/B Source: Korea Research Institute for Human Settlements Rental Housing Survey. The government-purchased and government-leased rental housing programs introduced in 2004 and 2005, respectively, played a major role in easing the housing cost burden for low-income households as well. Their rents were set at 30% of the market rate, close to that of permanent public rental housing. 18 <Table 14> Rent for Government-Purchased and Government-Leased Rental Housing Units (Greater Seoul Area, 2005) Purchased Rental Deposit-Based Permanent RentalNational Rental Classification Housing (50m 2 ) Lease (50m 2 ) (43m 2 ) (50m 2 ) Lease Deposit (KRW1,000) ~ ,000~12,000 Monthly Rent (KRW1,000) 8~ ~60 130~140 Note: Tenants of permanent public rental housing and national rental housing units shall be responsible for the monthly building management fee of KRW30,000~40,000 as well. Source: Korea National Housing Corporation Nevertheless, several problems related to the supply of public rental housing persist. Although the LT public rental housing to total housing inventory ratio had steadily grown to 3.0% as of 2006, this figure is noticeably smaller than that of foreign countries. In other words, Korea has yet to reach the level of use of public rental housing to realize housing stability for low-income households and make the necessary adjustments to the housing market. As such, the Korean government is planning to supply 1 million units of national rental housing by Note, however, that most of the national rental housing units are supplied using a quantitative approach to building new housing structures wherever land is made available; hence the supply-demand mismatch. Furthermore, since investment return takes a long period of time, progress with the 1 Million Unit Construction Project can result in financial deterioration and funding pressure even as businesses bear only 10% of the construction cost burden. A new problem of low-income households veering away from national rental housing can emerge as well due to the heavy burden of housing cost under the current rent scheme, which sets a high price for new housing units. 19 Moreover, there is a serious lack of systematic consistency between the different types of public rental housing because they are developed and offered with little consideration to the inter-connectivity with 18 Internal document of Korea National Housing Corporation 19 Presidential Committee on Social Inclusion. Evaluation of and Task for the Participatory Government s Housing Welfare Policy. September 2007.

16 other programs at different times. Public rental housing programs are made to vary based on the size limit of floor space and run with the housing subscription deposit account and lack of housing properties as candidate prerequisites. Note, however, that the failure to consider the economic condition of a household and the floor space size suitable for its characteristics can lead to the incorrect reflection of housing demands of the recipient households; this can ultimately raise the question of fairness between support recipient households, etc., and even among the support recipient households themselves. Therefore, various factors including the household income and housing standard should be examined through a differentiated, systemized process of support recipient selection to ensure that there are no recipients enjoying redundant benefits or those left in the blind zone. There are several problems related to housing cost support programs as well. For one, subjects of the preferential housing benefit program are also support recipients as per the National Basic Livelihood Security Act whose selection is made based on the candidates income and asset level. These subjects are charged the minimum housing cost based on the principle of supplementary benefit, but this amount does not consider the subject households housing situation. Moreover, there are no restrictions to the abovementioned support recipients access to the NHF housing loans for low-income Jeonse tenants provided they meet the loan candidate criteria. Another issue is the consistency within the NHF housing loan programs for Jeonse tenants themselves. On the one hand, the program for low-income households targets candidates based on the deposit of Jeonse and housing size (floor space of 85m 2 or less) in a given area. On the other hand, the program for working-class/middle-class households targets candidates based on their income level and the housing size (floor space of 85m 2 or less). Although both are financed with NHF, the economic capacity of candidates is measured with inconsistent standards: one through the deposit amount and the other through the income level. In addition, a simple prescription of the housing unit size cannot accurately reflect the housing condition appropriate for each household. The housing benefit program falls under the jurisdiction of the Ministry of Health, Welfare, and Family Affairs, and the NHF housing loan program, under that of the Ministry of Land, Transportation, and Maritime Affairs. Nonetheless, the presence of several bodies in charge of different housing welfare programs should not hamper the improvement of the housing condition and easing of the housing cost burden for beneficiaries or elimination of the problems of redundancy or omission to ensure the system s fairness. Toward this end, several factors including the candidates income level and housing condition should be considered to ensure consistency in the recipient selection process and systemize the support details accordingly. On the whole, various housing cost support programs were found not to provide sufficient assistance to the needy. As of 2003, only 718,000, 81,000, and 119,000 households benefited from the housing benefit, NHF housing loans for low-income households, and that for middleclass/working-class households, respectively; households receiving any form of housing cost support accounted for only 6.4% of the total. A little over 10,000 households received housing improvement support from NHF annually between 2001 and As of 2000, 21.5% of the total housing inventory was aged 20 years old or more. Clearly, support for low-income owners of old housing properties and have little interest in housing management should be strengthened further. Applicants income level and the housing condition should also be considered when selecting the beneficiaries of housing improvement support to enhance the program s effectiveness and fairness. Furthermore, the loan condition accommodating the applicants financial situation should be planned and implemented to encourage further public participation.

17 Housing support programs for low-income households in Korea generally have a positive effect on easing the housing cost burden, improving the housing condition, and enhancing the housing satisfaction level. Nevertheless, they have shortcomings in terms of fairness, performance, and accommodation of various housing needs and demands. Since there is no consistency in the recipient selection standards, support details, and delivery process in the different housing support programs run by different service providers, problems of redundancy and omission have emerged in the absence of an allencompassing connectivity system. The following principles should be observed in formulating and implementing policies to resolve such problems: First, a set of consistent standards for the economic (income and asset level) and housing (comparison of minimum/optimal housing condition, degree of housing affordability) conditions should be introduced in selecting beneficiary households of housing welfare support programs. In foreign countries, applicant criteria for most housing welfare support programs include income restriction. Although the household characteristics, housing condition, residence period, and social circumstances are reflected differently by program, economic and housing standards draw out the grand framework for differentiating support details within the housing welfare support system on the whole. The income level, rent, and appropriate housing cost burden ratio, which set the basis for policy standards, are determined and regularly promulgated by the government. Second, various programs should be developed, and related information, made easily accessible to help the needy select a program that is suitable for them. Third, the benefit delivery system should be improved for the smooth coordination of housing-related programs and to eliminate the problem of service redundancy or omission. Policy coordination among central government agencies, division of roles between the central and local governments, and adjustment of the local government s housing welfare-related functions should also be considered. Finally, cooperation between the government, market players, civil society, and other related bodies should be promoted to enhance the people s housing welfare.

18 REFERENCES Gweon, Byeong-jo (2006). Progress with the national rental housing policy and role of the public sector. National Rental Housing White Paper. Housing & Urban Research Institute. Hong, In-wook, et al. (2003). Public Housing-related Legal Infrastructure. Korea Center for City and Environment Research. Kemp, P.A. (1997). A Comparative Study of Housing Allowances. London: The Stationery Office. Kim, Geun-yong, et al. (2004). Study on Measures for Improving the Public Rental Housing Distribution and Management System. Korea Research Institute for Human Settlements. Kim, Hye-seung, et al. (2004). Study on Establishing the Housing Welfare Support and Delivery System. Korea Research Institute for Human Settlements. Ministry of Construction & Transportation. Guidelines for Government-Purchased Rental Housing Project Processing. (August 3, 2005). Ministry of Construction & Transportation. Housing Operation Handbook. August Ministry of Construction & Transportation (2004). Guidelines for Land Development Processing. Ministry of Construction & Transportation (2005). Housing Operation Handbook. Oxley, M. (1987). Aims and efforts of housing allowances in Western Europe. In W. van Vliet (Ed) Housing Markets and Policies Under Fiscal Austerity. London: Greenwood Press. Presidential Committee on Social Inclusion. Evaluation of and Task for the Participatory Government s Housing Welfare Policy. September Sohn, Gyeong-hwan, Hye-seung Kim, et al. (2003) Study on Establishing the Comprehensive Housing Policy Plan (2003~2012). Yoon, Joo-hyeon and Hye-seung Kim (1997). Evaluation and Reform of the Housing Welfare Policy. Korea Research Institute for Human Settlements. Ministry of Health, Welfare, and Family Affairs website Ministry of Land, Transportation, and Maritime Affairs website