United Nations Department of Economic and Social Affairs Sustainable Development

Republic of Korea

Korea delegation to the UNCSD-13 April 12, 2005
Improving Access of the Poor to Housing and Public Services
- Korea?s examples and proposal for financial capacity-building of developing countries -
Korea?s examples
- Housing policies to be tailored to income groups
- National Housing Fund supported by the Housing Bond and Lottery
- Establishing an ?International Housing F inance Credit Guarantee Fund? to
support financial capacity-building of developing countries
Mr.(Madame) Chair, Your Excellencies, and ladies and gentlemen,
Korea delegation fully supports the IPM policy options and practical measures to
provide adequate housing to the urban poor. Improving access of the poor to adequate
and affordable housing requires implementation of housing policies from the
perspective of both demand and supply side. From demand side, special needs of the
poor should be considered since they could not afford basic housing credit in financial
markets. From supply side, housing provision should be tailored to payment
capabilities of the poor.
The Republic of Korea has long implemented housing policies to take economic status
of the poor into account. For the lowest income group (1st income percentile), housing
subsidy in the amount of about US$ 40 a month is provided. For the next lowest
income group (2nd to 4th income percentile ), housing loan is provided at below market
interest rates through the National Housing Fund (NHF) and housing finance credit
guarantee is also provided to help them access to financial market. For the middleincome
groups (5th to 7th income percentile), the Korea Housing Finance Corporation
(KHFC) was established in March 2004 to specialize in securitizing mortgage bond and
provide mortgage loans at low interest rates. Giving credit to the poor through
differentiated housing finance including affordable mortgages is well-suited to the Item
96 in the Chair ?s draft.
(The KHFC was 100% funded by the Korean government and is guaranteed deficit
covering by the government so that the Corporation can issue Mortgage Backed
Securities (MBS) at low interest rates. Issuing MBS at low interest rates lowers the
KHFC?s financing costs, which in turn lowers the interest rates of mortgage loans,
ultimately helping people secure homeownerships. Due to the government?s active
market making, the Corporation is successfully fostering mortgage and MBS market by
providing mortgage loans as much as US$ 5 billion within a year since established. )
From supply side, housing provision takes into account housing affordability of each
income group. For the 1st income percentile, permanent rental housing units are
provided, 85% of whose construction cost is financed by the government. For the 2nd
to 4th income percent iles, 30-year rental housing units are provided with 10 to 40% of
the construction cost financed by the government. For the 5th and 6th percentile s, 5-year
rental housing units are provided and the construction cost is financed by the NHF at
low interest rates.
Successful housing policies need mobilization of financial resources. For most
developing countries, a lack of relevant finance is a cause to deter adequate
improvement of human settlements. Due to rapid industrialization, for example, Korea
suffered from chronic housing shortage and a lack of adequate housing finances. To
address housing needs of low -income groups, Korea set up the National Housing Fund
(NHF) in 1981 to finance housing construction, purchase, and housing rental. To
secure the fund for the NHF, the National Housing Bond (NHB) was introduced, which
levies on the title registration of real estates. A national housing lottery system was
also introduced to support the financing of NHF. Due to the successful operation of
the NHB and the housing lottery, the NHF has financed the construction of 3.3 million
housing units at below market interest, 3~5%, and provided housing loans in the amount
of about US$ 40 billion as of 2004. Korea delegation believes that these financing
tools could be examples for other countries which might experience a lack of housing
To promote a global effort for financial capacity-building of developing countries,
Korea proposes that an international housing finance credit fund be established to help
developing countries access financial resources in an international financial market.
The fund, which could be financed by developed countries, could provide housing
finance credit guarantee when developing countries need financing from international
financial institutions.
Developing countries could benefit from the fund, for their domestic financial market
may not provide housing finance and they may have difficulties in issuing bonds or
borrowing in an international financial market. The fund could reinforce credit to
developing countries, thus lowering their financing cost.
The fund also could leverage in housing financing in that the fund could guarantee
housing loan 30 to 50 times its equity. For example, a loan of US$100 million to
developing countries could provide a loan no more than $100 but in the case of loan
credit guarantee the same amount could finance 3 up to 5 billion.
Korea delegation hopes that the mechanism of housing finance credit guarantee will
benefit both developed and developing countries.
Thank you for your attention.