In February 2024, the government introduced the Youth Housing Dream Subscription Saving Account aimed at individuals who are unable to get onto the housing ladder. Besides supporting people in achieving their dreams of becoming homeowners, it assists them in accumulating funds for future home purchases. Therefore, the Sungkyun Times (SKT) will investigate the housing subscription program, its constraints, and potential solutions.
To Become Homeowners
- Understanding the Housing Subscription System
The housing subscription system is a process of depositing a set amount of money to become eligible for purchasing a house. This system can be divided into general supply and special supply. General supply offers housing to regular buyers, while special supply provides housing to individuals requiring special policy consideration, including people of national merit, those with disabilities, newly married couples, multi-child families, and elderly parents’ caregivers. The conditions of the housing subscription depend on both the type of housing and location. With housing types categorized into national and private housing based on the construction entity, national housing, which is built by the federal and local governments such as Korea Land & Housing Corporation (LH) and Seoul Housing & Communities Corporation (SH), is sold relatively cheaply. Private housing consists of apartments supplied by private companies, including various apartment brands. In addition, housing locations are classified into three zones based on the current housing market conditions: overheated speculation zones, overheated subscription zones, and contracted subscription zones. The overheated speculation zones are areas where housing price growth is higher than the inflation rate, and the competition rate is higher than 5:1. The overheated subscription zones involve housing prices exceeding 1.3 times the inflation rates. Lastly, the contracted subscription zones are regions where the housing transaction quantity has declined by more than 20% from the prior year, and the unsold housing units have doubled from last year.
- The Evolution of Housing Subscription
The housing subscription system was established through the Housing Supply Rules on August 18th, 1977. The housing subscription bonus point system, in which points are given based on the duration of not owning a house, the number of dependents, the periods of enrollment in the subscription saving account, and personal savings, was introduced in 2007. The Home Buyers’ Synthesized Saving Account appeared in 2009 to integrate subscription deposits, installments, and savings functions. In February 2024, the government introduced the Youth Housing Dream Subscription Saving Account to enhance the incentives of the previous Youth Preferential Subscription Account. While the previous subscription account was available to individuals with an annual income of ₩36 million or less and a monthly investment limit of ₩500,000, the new version is accessible to those with an annual income of ₩50 million or less and a maximum investment limit of ₩1 million. This change allows for more substantial savings on home purchases. The Youth Housing Dream Subscription Account offers an interest rate of up to 4.5%, which is 0.5% points higher than the previous subscription account. Furthermore, the system’s reform was initiated last March in response to the government project to promote childbirth. The special supply system for newborns allows applicants to qualify for special supply by certifying childbirth within two years, regardless of marital status.
From Inefficiency to Disadvantages
- Confronting the Inefficiency of the System
Increasing competition for public housing and the high returns on financial products and investment are raising concerns about the impracticality of the housing subscription system. According to the 2023 statistics of the Korea Real Estate Board, the number of people who canceled their subscriptions reached 1.62 million in 19 months. This phenomenon can be attributed to the limited availability of high-quality housing and the subsequent intensity of the competition for public housing. According to the real estate big data platform Real Estate 114, in August 2023, the competition ratio applying private apartments in Seoul was 79:1, nearly double the ratio of 43.2:1 in 2022. Furthermore, in November 2022, the Ministry of Land, Infrastructure, and Transport (MOLIT) excluded all regions except Seoul, Gwacheon, Seongnam, Hanam, and Gwangmyeong Cities from adjustment regulations. To apply in adjusted regions, all family members must have secured a subscription within the past five years to be eligible, while there are no restrictions in non-regulated areas. As a result, people often apply for a subscription and then either give up or buy back the subscription. In addition, the housing subscription can only be used for a specific purpose, making it more advantageous to choose other investments that can yield a high rate of return. Although the interest rate of the housing subscription system remains steady at around 2% for the initial 10 years of subscription, there is potential to earn 4% to 5% returns by investing elsewhere.
- Challenges Faced by the Young
Young people face economic disadvantages within the housing subscription system. The housing subscription bonus points are determined by factors that include the duration of non-homeownership (32 points), the number of dependents (35 points), and the length of the enrollment in the subscription saving account (17 points), totaling 84 points. Since the calculation of the duration for non-homeownership begins at the age of 30, individuals must turn 45 to receive the maximum available points for this criterion. This system challenges young single-person households to accumulate enough points for subscriptions. In 2023, the subscription success rate for young adults under 30 was 7.99%, and the housing subscription threshold in Seoul City increased by 20 points within a year. Moreover, the current system does not align with the societal shift toward the increase of single-person households. The reformed system of housing subscriptions introduced in 2024 disproportionately favors newly married couples and families with multiple children while excluding low-income and single-person households from the benefits. The winning rate for a special supply of single-person households for the first time in their lives is 21.03:1, and no special supply is aimed exclusively at low-income households.
From Struggles to Solutions
- Enhancing Housing Subscription Benefits
First, stable rental housing must be provided to solve the problem of limited availability. There are options to offer mandatory public rental units for low-income residents in the monthly rental market. Furthermore, the benefits of holding a housing subscription account should be strengthened to address the need for more effective subscriptions. A sophomore in the School of Electronic and Electrical Engineering said in an interview with the SKT, “If the housing subscription benefits are strengthened, I would be more likely to keep my subscription.” Although the most significant advantage of the Youth Housing Subscription Saving Account is the discounted loan interest rate, to qualify for the maximum benefit, the saver is required to pay more than ₩10 million per year with a limited number of houses available. Thus, the criteria for the benefits should be eased. On August 17th, 2023, the MOLIT increased the housing subscription saving interest rate by 0.7 points to 2.8%. Despite this change, applying for a higher interest rate is necessary in the current “era of deposit rates reaching 5%.” With the benefits of preferential loan interest rates and higher subscription saving rates, the termination rate is expected to decrease.
- Lowering Barriers to Entry
For people who are homeless or of low income, it is necessary to expand the supply of smaller houses. Since the number of single-person and two-person households currently account for 63.3% of all households, most future home owners are low-income and single-person households that are looking to purchase a small house. The housing supply for single-person households should be expanded, and a new special supply category for low-income households must be introduced. In addition, the government should use tenant savings resources for low-income households rather than constructing private housing. To solve the lack of housing support for low-income households, it is imperative to provide public housing or lower the subscription amount of tenant savings. Professor Jeong Yeon-ha of the Department of Economics at SKKU explained, “It would be better to provide a stable supply for the housing welfare of low-income households.” This governmental support will increase the housing stability of young people, reduce their financial burden, and lower the barriers for them to enter the housing market.
The housing subscription system seems like a golden ticket to realizing the dream of homeownership. However, the reformed system is still facing challenges of inefficiency and insufficient benefits for single-person and low-income households. Kingos should keep their interest in the improvement of the housing subscription market.