Can LH Separate 'Parent Company + Subsidiary'? Experts Question Its Effectiveness

[Image source=Yonhap News]

The government has proposed a restructuring plan to vertically separate Korea Land and Housing Corporation (LH) into a parent company for residential welfare and a subsidiary for land and housing development, but there is growing controversy over its effectiveness. Some voices suggest that "instead of rushing to make a hasty decision, the restructuring timeline should be postponed to the next administration."

According to the Ministry of Land, Infrastructure and Transport and industry sources on the 21st, the second public hearing on LH organizational innovation, co-hosted by the ruling and opposition party secretaries of the National Assembly Land, Infrastructure and Transport Committee, was held the day before. At this meeting, the Ministry of Land, Infrastructure and Transport presented a restructuring plan for LH’s parent-subsidiary system prepared through the law firm Taepyungyang.

Previously, the government had proposed three options regarding LH’s organizational restructuring. Option 1 divides into two organizations: housing part + residential welfare part, and land part. Option 2 separates into residential welfare part and housing part + land part. Option 3 makes the residential welfare part the parent company and the housing part + land part subsidiaries.

Taepyungyang expressed the opinion that among these, Option 3, which vertically separates the residential welfare function as the parent company and the land and housing development functions as subsidiaries, is appropriate.

In the case of horizontal separation, it was pointed out that it is difficult to properly control the speculative risks that may arise in the development sector, and that the application of consolidated corporate tax payment is difficult, which could increase the tax burden. On the other hand, vertical separation was explained to be advantageous in terms of strengthening control over the development sector, securing residential welfare funds, and organizational restructuring costs.

However, experts expressed negative opinions, saying that the effectiveness may be low. Lawyer Lee Kang-hoon of the People's Solidarity for Participatory Democracy pointed out, "If the parent company handles the non-profit residential welfare business and the subsidiary handles the profit-making land and housing businesses, the subsidiary may have a strong motivation to pursue profitability due to pressure to generate revenue."

[Image source=Yonhap News]

Professor Shim Gyo-eon of Konkuk University said, "The political circles overreacted too much to the LH land speculation incident and mentioned the word 'dismantling' LH, making it seem like that is the direction to go," adding, "They are pushing for organizational restructuring without properly assessing assets, something even a company worth 10 billion won would not do."

Professor Sung Si-kyung of Dankook University's Department of Public Policy said, "It is necessary to review whether a parent-subsidiary relationship can be established under the current public institution operating system," explaining, "Actual control comes from approval of projects, supervision, appointment rights of executives, and budget allocation rights, so it is necessary to examine the basis on which a public (non-profit) business can control a profit-making business."

Opposition is also strong in regions such as Jinju, where LH headquarters is located. The Gyeongnam Jinju Innovation City Protection Civic Movement Headquarters, Jinju Mayor Jo Gyu-il, and National Assembly members Park Dae-chul and Kang Min-guk held a press conference in front of the National Assembly the day before to condemn the government's LH organizational restructuring. Lee Young-chun, co-representative of the Civic Movement Headquarters, argued, "Although the government announced it would finalize the restructuring plan after collecting various opinions, proceeding with the reform plan without discussing with the local community is a betrayal of Jinju citizens and Gyeongnam residents."

There are also calls to delay the timing of the restructuring. Lawyer Lee Kang-hoon said, "Instead of deciding and pushing the plan within a few months, the government and the National Assembly should derive reform tasks through comprehensive research from various perspectives," adding, "It is desirable to calmly decide in the next administration." However, Minister of Land, Infrastructure and Transport Noh Hyung-wook said at a meeting with reporters marking his 100th day in office on the 19th, "If time passes ambiguously, internal instability will only increase," emphasizing the need to expedite the LH organizational restructuring.

This content was produced with the assistance of AI translation services.