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close this bookThe Human Settlements Conditions of the World's Urban Poor (HABITAT, 1996, 233 p.)
close this folderV. Reaching the urban poor
View the document(introduction...)
View the documentA. The changing international policy context for urban development and shelter
View the documentB. The sites-and-services programme in Zimbabwe
View the documentC. Brazil: the FUNACOM programme in São Paulo
View the documentD. An evaluation of the Employees’ Housing Programme (EHP) in the Republic of Korea
View the documentE. India: An evaluation of a series of Slum Improvement Programmes
View the documentF. Conclusions: Assessing the experience of projects/programmes aimed at improving the human settlements conditions of the world’s urban poor

D. An evaluation of the Employees’ Housing Programme (EHP) in the Republic of Korea

The economy of the Republic of Korea has grown from a mainly agricultural one in the 1950s to a mainly industrial one today. GNP per capita has grown from $87 in 1960 (Kim, W-J., 1994) to $7,660 in 1993. The economy has grown by an average of 8.2 per cent per year during the 1980-1993 period, the highest of all the countries listed by the World Bank (1995a). The emphasis of government policy has been to ensure continued high economic growth. Despite the success of the economy, however, direct government investment into housing has, until recently, been relatively modest, ranging from 3 to 4 per cent of total expenditure between 1980 and 1988. With the advent of a major house construction programme aimed at building two million units between 1988 and 1992 this proportion of expenditure increased to more than 7 per cent in 1989 (Kim, W-J., 1994).

One of the major structural changes in the Republic of Korea - occasioned by the long term success of government economic policies - has been the formation of a large urban industrial workforce. This has been made possible by large-scale rural-urban migration. In fact, the urban population of 1995 accounts for 81.3 per cent of the total population. Housing provision for these workers has largely been in the private sector (62.3 per cent of new housing construction was by the private sector between 1965 and 1990), much of this is privately rented accommodation, or in flats and dormitories provided by industrial companies for their employees. In fact, by 1990 a total of 55 per cent of all urban households tenants (Kim, W-J., 1994).

Continued serious shortages of accommodation have resulted in successive waves of intense speculative activity in both house prices and land costs. Between 1971 and 1978 house prices increased by a multiple of 19 whilst incomes quadrupled; and the price of urban residential land in Seoul rose on average by 1582 per cent between 1979 and 1985 (Kim, J-H., 1994). Continuing difficulties of access to the housing market persuaded the government to launch a major house construction programme in 1988 aimed at providing two million units of accommodation before 1992. Moreover, the fear that speculative activity in urban land was likely to undermine this programme also drew the government into strong interventions in the land market in 1989. A series of legislative measures imposed a ceiling on urban land ownership in the major cities; levied property taxes on the market value of real estate; and introduced capital gains tax on corporate land holdings to discourage hoarding and release land for development.

As part of the two million units programme, the government launched the EHP in 1990 to relieve instability in the rented market and to improve housing quality for industrial workers.

1. The resource base for the EHP

Over 1990/1991 almost 100,000 units were constructed under the EHP. Both housing for sale and housing for rent were provided by local government, the Korean National Housing Corporation (KNHC) and private builders (see table 54).

Table 54. Housing units constructed under the EHP, Republic of Korea (1990/1991)


Total number
of units

Housing for sale

Housing for rent



units

per cent

units

per cent

Local Government

33,969

25,971

76.5

7,998

23.5

KNHC

36,641

24,409

66.6

12,232

33.4

Private builders

26,851

15,721

58.5

11,130

41.5

Total

97,461

63,101

64.7

31,360

35.3

Source: Jang, 1994.

The programme was administered by local authorities and the eligibility criteria were an income ceiling for targeted households of K$1,250 per month; or more than 10 years service in the industry; and a targeting of workers in the manufacturing, transportation, coal mining and cleaning industries.

For those that wanted to purchase a house, loans of up to K$17,500 per unit were made available to householders to set against a purchase price of about K$30,000. These loans were repayable over a 20 year period at an annual interest rate of 8 per cent. Loans of K$18,750 per unit were made available to industrial companies to provide rental housing for their employees. Priority was to be given to small businesses.

In financial terms the programme has been very beneficial for those who have qualified. Housing expenditure for those in rented housing has been reduced by more than 50 per cent on average, whilst for those purchasing their housing, the increasing asset value has more than offset the imputed rental value of the hefty deposit required. Nonetheless the relatively high cost of housing for sale has limited the participation of low-income workers. A monthly payment of K$250 is needed, for example, for loans and if a housing expenditure ceiling of 30 per cent of income is assumed, this implied a monthly income of about K$830. Yet, the average income of industrial workers was only K$700, and 55 per cent of small company employees earned less than K$500. This has meant that whilst the workers from small companies have less ability to purchase housing and therefore a higher need for rental accommodation, the smaller companies have less capacity to manage rented housing programmes.

2. The social impact of the EHP

Apart from reducing the housing costs of beneficiaries, the programme has greatly improved their housing conditions in terms of the amenities available, for example, the availability of kitchens, bathroom and heating methods. As far as size is concerned the units were relatively modest at 50-56 m2, and whilst on average the size of apartments has increased from 45-52 m2, 30 per cent of residents have experienced a decrease in the space available over their previous accommodation.

At the same time, the programme has improved the residential stability of the beneficiaries, who mostly lived in privately rented dwellings, in company housing, or in dormitories before moving into the EHP. A four year rental period is common for the rental housing which significantly improves residential security. It remains to be seen if this is also the case for those purchasing their housing. Since purchasers are able to resell on the open market after just two years, it was anticipated - because of the highly subsidized nature of the programme - that this would result in substantial potential financial gain, thus encouraging the beneficiaries to sell.

The programme has received some criticism for the modest space standards constructed. Whilst there is a maximum limit of 60 m2, the size of developments has varied and many units have been built at less than 45 m2. The average size of workers’ households, however, is 5 persons. The programme has therefore restricted access to smaller households, and in approximately 50 per cent of cases some household members were excluded when they moved into the EHP. Other eligibility criteria have led to the exclusion of younger households both on grounds of cost and the requirement of having been employed for a 10 year period. Many workers’ households are also excluded from consideration because of the targeting of specific sectors of industry.

Finally, there have been some difficulties with the location of certain sites. Because of the difficulty of acquiring low-cost land, some large scale housing complexes have been constructed on peripheral sites and there is insufficient demand to fill them because of the inconvenience of their location.

3. Conclusions

The EHP has been very beneficial for those fortunate enough to have qualified for it. They have seen their housing costs and rents fall whilst the quality of their housing and environment has substantially improved. Yet, despite a high level of public subsidy, the EHP is not reaching the low-income groups. The costs remain too high. Other eligibility criteria have also led to the exclusion of low-income groups from the programme.

The majority (72.5 per cent) of the housing units have been constructed by central or local government agencies and the rest by private builders. The private sector has been limited in this way because of the high taxation levels on land for private sector agencies wishing to construct houses. At the same time the partnership with private industries over housing for their employees has only been partially successful. Small companies in particular are in a double-bind, their employees are invariably unable to afford the costs of home ownership whilst the companies themselves have limited capacity to manage rental housing schemes.

A further 500,000 units are planned to be developed between 1992 and 1996; it remains to be seen whether the government will relax the eligibility criteria or introduce other mechanisms to encourage the participation of small businesses and extend coverage of the programme increasingly to meet the needs of low-income groups.