"Turning Vacant Retail Space Into Housing" Government Moves to Address Looming Housing Supply Cliff, Also Pursues Regulatory Easing for Use Conversion

Government discussing measures to expand supply, including converting retail space into housing
If realized, the move is expected to simultaneously ease retail blight and the housing supply cliff
Special legislation also under review to lower institutional barriers

The government has laid out a blueprint for expanding housing supply in the short term. It is focusing on measures that could alleviate supply shortages within a relatively short period, including converting non-residential facilities such as retail properties into housing and increasing the supply of studio-type homes aimed at single-person households. Regulatory easing measures to accelerate the implementation of such steps are also expected to be announced within the first half of this year.

Government Response to the Housing Supply Shortage

On March 12, Kim Yun-deok, South Korea’s minister of land, infrastructure and transport, said in an appearance on CBS Radio’s Park Sung-tae’s News Show that “given the current difficulty of increasing housing supply within a short period, we are preparing supply expansion measures by dividing them into ultra-short-term, short-term and long-term policies.” As an ultra-short-term supply measure, he presented the conversion of non-residential facilities such as retail space into housing. “We are reviewing a plan to quickly remodel spaces such as ordinary retail properties into housing for supply,” he said. “As single-person households have recently been rising rapidly, we are also considering a method of expanding the supply of premium studio-type housing for single-person households.”

The government is also pushing to expand purchase-and-lease programs. Kim said, “We plan to increase housing volume in the short term by revitalizing purchase-and-lease projects in which the public sector buys homes and supplies them as rentals,” adding, “We will accelerate the process so that supply can increase as quickly as possible.” He also said the government is considering ways to strengthen administrative support so that private-sector redevelopment and renewal projects can move faster, though he did not mention a specific execution plan.

Kim also addressed the recent supply shortfall in the housing market. “There were aspects in which housing supply preparations were not properly carried out during the previous administration’s three years,” he said. “We will bring forward existing housing supply plans, including third-generation new towns, as much as possible, and also speed up housing supply using idle urban land.” He added that “the principle is that continuing to hold homes should never become an economic gain,” and said the government plans to stabilize the real estate market by comprehensively mobilizing policy tools such as taxation, finance and liquidity management. He said the policy direction is to establish housing as an asset for residence rather than a mere investment vehicle.

Benefits of Utilizing Retail Space

The residential conversion of commercial buildings, which Kim cited as an ultra-short-term measure, is seen as a response reflecting current conditions in the real estate market. According to the Korea Real Estate Board, the vacancy rate for medium- to large-sized retail properties nationwide has hovered at around 13% for years. That is 2 to 3 percentage points above the historical average. With online consumption increasing and the oversupply of retail buildings continuing, an economic slowdown has compounded the trend, driving vacancy rates sharply higher. In some regions, concerns have even been raised over the possible blighting of commercial districts.

By contrast, the housing market is straining under supply shortages. The shortage emerged after a large number of construction starts were suspended or delayed in 2022 and 2023 due to high interest rates and surging construction costs. Last year, new private apartment presale supply fell to 116,213 units, the lowest level since 2016. Given that move-ins typically take place two to three years after presales, a supply cliff in 2027 and 2028 has effectively come into view. Against that backdrop, using vacant retail space for residential purposes would make it possible to immediately reduce pressure on the market. If vacant non-residential buildings are remodeled into housing, occupancy can be completed in a relatively short period. In general, supply through reconstruction, redevelopment or new land development takes at least three to four years, and in many cases more than a decade.

Still, the difficulty of using non-housing facilities as housing under current law remains a problem. Stringent conditions are attached to converting commercial facilities into residential use. First, the relevant site must be located in an area where housing is permitted, and during the conversion process the property must newly satisfy residential standards on parking, daylight access, ventilation, evacuation and soundproofing. In particular, in general industrial zones where knowledge industry centers are located, the permitted scope for apartment housing is narrow, meaning use is often restricted to dormitories.

Regulatory Revisions Expected Within the First Half

The government is reviewing regulatory easing to resolve these issues. The Ministry of Land, Infrastructure and Transport is currently working on institutional improvement measures that would allow retail space and knowledge industry centers to be converted into housing more quickly. This is interpreted as follow-up work to flesh out the plan, presented in last year’s Sept. 7 supply measures, to convert vacant retail and office properties into non-apartment housing. The improvement package will reflect the findings of a study on “flexible use conversion measures” conducted by the Architecture and Urban Research Institute under commission from the ministry, and special legislation related to converting vacant retail space into housing that incorporates those measures is scheduled to be introduced in the first half of this year.

According to reports, the government and related circles are currently reviewing measures including easing certain residential standards such as parking and septic tank requirements to lower the threshold for use conversion, expanding the permitted scope of quasi-housing such as officetels in general industrial zones, and introducing hybrid residential-commercial buildings that can be used flexibly according to demand for commercial or residential space from the new construction stage. Measures to increase the supply of officetels and urban-type housing are also under discussion. These include raising the cap on the number of units in urban-type housing from the current fewer than 300 units to as many as fewer than 700 units, and converting 10,000 units of residential accommodation facilities in the Seoul metropolitan area into residential officetels.

Still, what has been disclosed so far is, in effect, closer to a policy direction than to a concrete execution plan. In explanatory material released in January, the ministry said the timing of the introduction of special legislation related to converting vacant retail space into housing, the target building types, and detailed easing measures have yet to be determined. The “Measures to Expand and Accelerate Urban Housing Supply,” announced in the same month, also did not present specific provisions or an implementation timetable for non-residential conversion. The government has said it will announce follow-up institutional improvement measures as soon as preparations are completed.