Government Urged to Raise Standard Construction Costs for Public Rental Housing at Current Levels Over 5 Years
[Asia Economy Reporter Kim Cheol-hyun] The mid-sized enterprise sector has requested the government to raise the standard construction cost for public rental housing, which has remained unchanged for five years. Amid calls for expanding the supply of public rental housing to help resolve the jeonse and monthly rent crisis, there is an opinion that strong incentives such as raising the standard construction cost should be used to attract participation from private construction companies in order to enhance the effectiveness of the government's real estate policies.
The Korea Federation of Mid-sized Enterprises (KFME) stated this on the 26th through its "Request for Realistic Adjustment of Standard Construction Cost for Public Rental Housing" submitted to the Ministry of Land, Infrastructure and Transport and related agencies. According to KFME, the standard construction cost for public rental housing was increased by 5% in June 2016 after 7 years and 6 months, and has remained the same for about 5 years since then. It currently stands at about 60% of the basic construction cost, and the gap continues to widen.
KFME explained, "To meet the continuously rising expectations for public rental housing, it is essential to apply high-quality materials and interior finishes and improve defect repair management, but the current standard construction cost is generally perceived by the industry as making it difficult not only to secure profits but even to recover the initial investment." KFME added that the announcement of the standard construction cost for public rental housing has been irregular, occurring only five times in 20 years since 2000, which has exacerbated difficulties for private construction companies in establishing management strategies.
A KFME official said, "Encouraging private participation based on unrealistic standard construction costs is a kind of unfair practice that undermines market fairness and ultimately satisfies no one," adding, "Considering that the basic construction cost, which is the standard for calculating the sale price of sale housing, is regularly announced twice a year, this continuous discriminatory measure is incomprehensible."
KFME also emphasized that to ensure the success of real estate market stabilization policies such as the government's "Support Measures for Housing Stability for Low-income and Middle-class" announced on the 19th, proactive measures should not be hesitated. To succeed in mid- to long-term upgrades and support plans for public rental housing, it is necessary to acknowledge the limitations of the public sector's supply capacity and quickly implement various measures to expand private construction companies' participation.
Ban Won-ik, Executive Vice Chairman of KFME, stressed, "Realizing the standard construction cost for public rental housing will guarantee appropriate profits for private construction companies and serve as the first key step to greatly expand the supply of rental housing as 'high-quality lifelong housing,' firmly closing the gaps in numerous policies addressing the jeonse and monthly rent crisis."
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