Less than 10,000 Public Housing Permits Last Year... "14,0000 Units Target This Year?" [Real Estate A to Z]

"Construction Cost Increase Delays Public Housing Permits"

"Difficult to Achieve This Year's 140,000 Housing Permit Target"

7,900 Public Housing Permits Issued from January to November Last Year
Only 6.3% of the 125,000 Target

Apartment buildings in downtown Seoul. Photo by Yonhap News

Although the government announced plans to approve permits for 140,000 housing units this year, concerns are emerging in the market. Last year, the government also set a permit approval plan for nearly 130,000 construction-type public housing units (public sale and public rental), but only managed to approve 7,900 units. In the private sector, due to the construction downturn and rising construction costs, companies are reluctant to build houses. The burden of constructing public housing is similar, leading to analyses that the policy targets were set unrealistically high without practical feasibility.

"Is 140,000 Public Housing Units Feasible?"

On the 1st, Professor Kim Jin-yu of the Department of Urban and Transportation Engineering at Kyonggi University said, "Setting a target to approve permits for 140,000 construction-type public housing units when the market is this weak is an aggressive goal." He emphasized, "The overall economy, including the construction industry, is struggling, and political instability makes achieving this target difficult." The Ministry of Land, Infrastructure and Transport set the permit approval target for construction-type public housing at 140,000 units this year. This is the highest ever, and the total supply of public housing, including purchase rentals and jeonse rentals, reaches 252,000 units.

Yoon Ji-hae, head of the Research Team at Real Estate R114, said, "Even for government-ordered projects like public housing, the construction is done by private construction companies," adding, "From the perspective of construction companies, it is difficult to make a profit with rising construction costs, so there is no incentive to take on these projects." Professor Kim said, "For public housing permits to increase, the projects must be economically viable," and explained, "If construction costs rise, project implementers like the Korea Land and Housing Corporation (LH) should reflect the increase to construction companies, but due to the nature of public projects, complex processes such as reviews by the project implementers make it difficult to reflect these increases." He explained that with the possibility of rising material costs due to sharp exchange rate fluctuations, increasing construction costs is challenging.

Yoon said, "Although the government has proposed measures to reflect the reality of public construction costs, it is difficult to raise construction costs to the level desired by construction companies." He added, "Public construction projects basically apply a standard construction cost and can only increase it once or twice a year. Even if construction costs are adjusted to reflect reality under these circumstances, the increases in material costs that have surged within a few months cannot be reflected."

The construction costs for public housing by LH, a representative public housing project implementer, have risen significantly. According to LH, the land cost per 3.3㎡ in the metropolitan area increased by about 1 million KRW, from 3,625,000 KRW in 2022 to 4,624,000 KRW in 2023. The construction project costs for public rental housing also increased. LH's public rental construction project cost growth rate was 27.7% in 2023. This rate was 4.6% in 2019, 18.7% in 2020, 14.5% in 2021, and 3.7% in 2022.

Public Housing Permit Approvals from January to November Last Year, 6.3%

There are concerns that achieving last year's construction-type public housing permit approval targets was difficult. Yoon said, "To meet the Ministry of Land, Infrastructure and Transport's permit approval target set for this year, 117,100 public housing projects should have been approved by December last year," adding, "It is physically difficult to achieve this target." Permit approval statistics usually take about a month to compile. Last year's results are expected to be released by the end of this month.

According to the '2024 Public Sale and Public Rental Housing Supply Performance' received by Park Yong-gap, a member of the Democratic Party, from the Ministry of Land, Infrastructure and Transport on December 25 last year, the permit approval performance for construction-type public housing from January to November last year was 7,900 units. This is only 6.3% of the target of 125,000 units.

On the 24th, as apartment transactions shrink due to loan regulations and other factors, listings continue to accumulate. A real estate agency in Gangnam, Seoul, has flyers for sale and jeonse listings posted. Photo by Kang Jin-hyung

The Ministry of Land, Infrastructure and Transport believes that most of the public housing volumes handled by LH and others have completed applications and permits can be issued within a month. However, Professor Kim said, "Even considering that permit approvals usually concentrate at the end of the year, the volume to be processed is excessively large," adding, "Typically, 50-60% of the annual volume is processed in December, but last year, the volume requiring permits was higher than usual, so it is questionable whether it can be processed all at once."

Every December, there is a 'permit approval rush.' According to statistics from the Ministry of Land, Infrastructure and Transport, the December permit approval volume for public sale and public rental housing was between 20,000 and 30,000 units from 2014 to 2018. It then rose to 40,000 to 50,000 units from 2019 to 2021, and excluding 19,194 units in 2022, it increased to 65,700 units in 2023. On the other hand, the permit approval volume from January to November each year has been decreasing. This volume was 12,163 units in 2023. It had been in the 20,000 to 30,000 unit range but dropped to the 10,000 unit range starting in 2020.