The equilibrium of housing supply suggests a situation where the demand side and the supply side are in harmony at the same time. If housing demand increases due to a rise in housing supply, the construction price of the house will rise naturally. On the other hand, if housing supply increases due to a rise in housing demand, the construction price of the house will decrease. Hence, considering the low real price of housing construction recently, it can be understood that housing supply is more likely to have increased due to the rise in housing supply rather than housing demand.
Currently, the supply of pre-sale housing volumes from 2015 has reached a peak since the implementation of the 2007 pre-sale price ceiling system. In addition, the level of housing supply recently supplied is much higher than the fundamental demand for housing. Furthermore, when the pre-sale volumes supplied is fully completed in 3 or 4 years, there is a possibility, which will be a burden on the housing market. And this particular situation that is the rapid increase in the volume of housing supply has occurred periodically. Therefore, it is suspected that the supply of housing in Korea is being implemented by the coordination failure of construction companies, rather than by an equilibrium view of housing supply.
According to the panel regression analysis, 1% increase in pre-sale volume is estimated to increase 0.38% of unsold pre-sale volume after completion with 3-year time lag even after controlling for changes in demand conditions. These results suggest that the rapidly increasing sales volume from 2015 in the past three years may have accompanied the increase in unsold housing units after the completion since 2018. Scenario analysis suggests that if the current macroeconomic environment and user costs remain the same and there is a similar housing demand, the number of unsold units will reach about 25,000 in 2019 after completion. These volumes exceeded about 20,000 unsold units after the completion of the construction from 2001 to 2017 on average. Of course, the situations where the macroeconomic environment, the economic growth rate, is better than the present, or the house price is higher than the present and the user cost is decreased, reduce the amount of unsold housing after completion. And according to the analysis of the effect of unsold pre-sale housing on the construction industry after the completion, in the case of publicly listed construction companies, when the number of unsold units increased by 1,000 after completion, the interest coverage ratio is estimated to decrease by 0.12 with 3 years time lag,
In the case of registered construction companies, the effect of unsold housing on the interest coverage ratio was the largest at 1 year after the completion of construction. When the number of unsold units increased by 1,000 after completion, the interest coverage ratio of -0.04 is obtained with a time lag of one year. In other words, as the number of unsold housing units after completion is larger, the interest cost is faster than the operating profit rate, and the financial soundness of construction companies becomes worse. This implies that the increase in unsold housing after construction will ultimately have a negative impact on the financial soundness of the construction industry.
As a policy measure to reduce the volatility of housing supply, first, local governments and central government need to share various information related to housing supply (licensing and permit, construction completion permit, housing planning in mid to long term) and efforts to design with the housing supply plan are needed. It is also necessary to expand the share of capital of construction company, so that a housing supply structure may be under self responsibility. In addition, the expansion of the post-sale system to the private sector as well as the public sector will help to reduce the volatility of the housing supply. Therefore, we need to improve the introduction of the post-sale housing system and diversify the housing finance for the construction industry. Although it is true that the pre-sale system, which is centered on suppliers in the past, has played a sufficient role in housing supply, it is time to prepare a new consumer-centered post-sale housing system as it is time to establish a new housing market system for housing management and maintenance.