Local Housing Corporation Subsidy Reform Eases Burden... Seoripul 1 and 2 District Public Housing Projects Gain Momentum

Funding Support Transitions from "Subsidy to Capital Investment"
SH to Save 1.9 Billion Won in Corporate Taxes Annually
GH Projects 26 Percentage-Point Decrease in Debt Ratio
Increased Capacity for Corporate Bond Issuance
Review Underway for New Projects in the Third New Towns

With the government’s recently announced housing supply measures including an improved subsidy structure for local housing corporations, organizations that have struggled to launch new projects due to fiscal constraints are expected to find some breathing room. Public housing projects like those in Seoripul District, Seocho-gu, Seoul, are anticipated to pick up speed.

A view of Seoripul District and part of an apartment complex in Seocho-gu, Seoul. Photo by Yonhap News

According to major local organizations such as Seoul Housing & Communities Corporation (SH) and Gyeonggi Housing & Urban Development Corporation (GH) on August 19, this revision in the subsidy structure is expected to enhance their financial health and create additional capacity for housing supply. The government announced it would revise subsidy support for rental housing by local corporations such as SH and GH, shifting the model to provide capital investment—rather than subsidies—in the same way as Korea Land & Housing Corporation (LH). Through this change, the authorities plan to increase the capital base of local housing corporations and significantly expand their capacity to supply new housing.

Under the previous system, local housing organizations supplied rental housing with direct government subsidies, unlike LH, which received capital investments.

If the support changes from subsidies to capital investments, local organizations can reduce their corporate tax burden and expand their capital base. Currently, subsidies are recognized as revenue, leading to higher corporate taxes. SH estimates that converting to capital investment could save approximately 1.9 billion won in taxes annually. However, as the current bond issuance by SH is significantly below its statutory ceiling, the organization expects little immediate impact on its bond-issuing capacity from this revision.

Expanding the capital base of local organizations also improves their debt ratios. A lower debt ratio increases borrowing capacity, making it easier for them to raise the funds needed for public housing projects. According to SH, if last year’s 313.1 billion won in subsidies had been received as capital investment, the debt ratio would have improved by 6 percentage points. GH also forecasts that, with this revision, its debt ratio will decrease by 26 percentage points by 2029, providing additional borrowing capacity of about 2.8 trillion won.

According to the office of Assemblyman Park Yonggap of the Democratic Party of Korea, if the government’s capital expansion plan for local housing organizations is implemented, total capital among local housing corporations nationwide is expected to increase by roughly 1.2174 trillion won. This should allow the total ceiling for corporate bond issuance to rise by 4.6293 trillion won as well.

With an improved debt ratio, key public housing developments—such as Seoul’s Seoripul 1 and 2 Districts—are expected to gain momentum. The Seoripul Districts are public housing zones, created by removing greenbelt restrictions in a joint project between the Ministry of Land, Infrastructure and Transport and the Seoul city government, executed by LH and SH together. Supply for Seoripul 1 District, set at 18,000 homes in February, combined with Seoripul 2 District, which was designated last month for 2,000 homes, brings the planned total to 20,000 homes.

Additional new housing supply projects may also become possible. A GH official explained, “So far, financial constraints meant we couldn’t even consider new projects in the third wave of new cities. We have revised our medium- and long-term project plans in response to this policy change and are currently conducting internal reviews to resubmit them to the Gyeonggi Provincial Government next month.”

Currently, GH participates in 14 projects, including eight in the third new city initiative and six related to the government’s February 2 and April 4 policies. GH plans to invest about 33.5 trillion won in these projects, which are expected to result in the construction of 87,106 homes once completed. While rapidly rising debt has previously limited new project launches, GH says it now has more scope to issue bonds and, as a result, can move forward with these housing projects.

The government will introduce a system where local governments settle invested capital with local housing corporations based on actual housing supply results. This aims to establish an accountability system in which local governments consistently encourage their local corporations to supply more housing. If a local housing corporation fails to meet its supply goals, the local government must return unused funds to the national government through budget revisions or similar processes.

This content was produced with the assistance of AI translation services.