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Apartment complexes in the Korean housing market: what are the benefits of agglomeration?

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Abstract

The Korean government has codified a unique set of regulations that requires developers to provide certain types and sizes of community and commercial facilities in proportion to the number of housing units in an apartment complex, given the lack of public funds necessary to create a livable and self-sufficient environment. To answer the question of why large-scale apartment complexes have been popular in the Korean housing market, this study illuminates the agglomeration benefits resulting from the integration of community and commercial facilities in apartment complexes. Using hedonic regressions and causal mediation analysis, it concludes that the agglomeration benefits of apartment complexes associated with an increase in the size of both community and commercial facilities outweigh the congestion diseconomies caused by an increase in the number of housing units. This implies that the government’s intervention has made large-scale development of residential areas financially feasible without the use of public expenditure.

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Fig. 1

Source: KNHC (1987: p. 18)

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Notes

  1. For example, by law, public agencies exercise its power of eminent domain to facilitate land acquisition at a massive scale and provide homebuilders with land for apartment developments at below market price (Hannah et al. 1993).

  2. In the Housing Act, multi-family housing is composed of apartments and row houses. By the current definition, apartments are residential buildings of minimum five floors, and row houses are residential buildings below five floors. Meanwhile, apartments are generally developed with minimum 30 housing units, which are defined by housing estate by law, this paper will refer to apartments as ‘apartment complexes’ to emphasize the characteristics of housing estate defined and regulated by law.

  3. Perry (1929) introduced the concept of the neighborhood unit, a planning model that prioritizes the ability of children and families to access school and community services on foot without encountering any foreseeable dangers, such as crossing a major thoroughfare.

  4. Before 2010, it applied to the housing development projects with 20 housing units and over. RHCS in practice has affected only apartment complexes because developers of detached and row houses are able to avoid the regulation by constructing less than 20 housing units on the same estate (Kim and Kim 2000).

  5. While pure public goods are characterized by non-rivalry and non-excludability in consumption, club goods are excludable through a certain type of mechanism such as a guard, a fence, or a toll booth.

  6. Accounting that lease contracts in Korea are generally made for 2 years, this analysis includes all lease transactions of each housing unit in apartment complexes throughout this period.

  7. In order for tenants and landlords to easily compare rents under the two different lease systems of Chonsei and Wolsei, the Korean Appraisal Board announces the Chonsei-Wolsei conversion rate every month, subject to the region and the housing type. For more information on the Korean rental housing market, refer to the papers by Son (1997) and Ryu and Kim (2018).

  8. Regarding building age, Lee et al. (2005) highlighted the capital gain effect of the possibility of redevelopment as apartments depreciate. We also tested the redevelopment effect; however, the concave relationship of the capital gain effect was not discovered in the housing rent model.

  9. Using a geocoding process in GIS, the addresses of 604 elementary schools provided by the Seoul Metropolitan Office of Education were mapped out. Then, each of the 2998 apartment complexes was examined to check whether there is a vehicle road of the width of 20 m or more between a complex and an elementary school.

  10. Among 25 boroughs, 7 boroughs displayed higher than average ratios of the number of private cram schools to the students attending elementary, middle, and high schools. However, since 2 boroughs show relatively small number of students, implying that those private cram schools are not serviced for local students, the remaining 5 boroughs were selected.

  11. Since this study utilized building registries that are not categorized by various types of facilities in detail, we infer the diversification effects from legal framework and the scale effects. Future research could shed light on the diversification effects by constructing the size by type of community and commercial facilities in a complex.

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Acknowledgements

This study was developed from the doctoral dissertation of Yang (2017), supervised by the late Professor Mack Joong Choi. The author expresses gratitude to two anonymous referees and the dissertation committee, Professor Seoung Hwan Suh, Euijune Kim, In Kwon Park, and Kyung-min Kim for their helpful and valuable comments.

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Authors and Affiliations

  1. Research Institute of Agriculture and Life Sciences, Seoul National University, Seoul, Republic of Korea

    Hee Jin Yang

  2. Graduate School of Environmental Studies, Seoul National University, Seoul, Republic of Korea

    Mack Joong Choi

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  1. Hee Jin Yang
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Appendix

Appendix

See Table 5.

Table 5 Changes in mandatory regulations contingent on the number of housing units
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Yang, H.J., Choi, M.J. Apartment complexes in the Korean housing market: what are the benefits of agglomeration?. J Hous and the Built Environ 34, 987–1004 (2019). https://doi.org/10.1007/s10901-019-09652-4

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