Construction Industry Faces "Material Shortage Crisis"... Won Hee-ryong Calls for "Timely Reflection of Price Increases in Construction Costs"

Minister of Land, Infrastructure and Transport Holds On-Site Inspection Meeting on Construction Material Supply Chain
Industry: "Efforts to Reduce Construction Costs through Alternative Materials and New Construction Methods"
Won Hee-ryong: "Improving System to Reflect Price Increases Timely"
"However, Prices Should Not Be Unilaterally Passed on to the Public"

On the 30th, Won Hee-ryong, Minister of Land, Infrastructure and Transport, mentioned government measures at a meeting on supply chain response held at a multi-family housing construction site in Sejong City.

"Not only construction material costs but also labor costs have risen significantly. Without measures in place, small and medium specialized construction companies will completely collapse." (Noh Seok-soon, Acting President of the Korea Specialty Contractors Association)

"We will review related system improvements to ensure that recent increases in material prices are promptly reflected in construction costs. However, cost increases should not be unilaterally passed on to the general public. Both the industry and the government should find ways to share the burden." (Won Hee-ryong, Minister of Land, Infrastructure and Transport)

On the morning of the 30th at the M2 block of the 6-3 Living Zone in Sejong City, a folding table and chairs were set up in the middle of a sunlit construction site. A supply chain inspection meeting was held to address the rise in raw material prices at the construction site.

At this meeting, private organizations related to construction and housing voiced a united appeal regarding the risk of construction halts due to rising material costs. The possibility of bond calls (contract performance guarantee deposit recovery) was also mentioned.

Park Jae-hong, President of the Korea Housing Builders Association, said, "Construction companies are caught in a sandwich between rising raw material costs and the price ceiling system for pre-sale prices." He added, "With the pre-sale price ceiling system and high pre-sale price reviews limiting prices, and material costs rising, there is no suitable solution for developers and contractors," urging for system improvements such as easing the pre-sale price ceiling system.

Additionally, criticism was directed at ineffective regulations. Jeong Dal-hong, President of the Korea Mechanical Equipment Association, pointed out, "Article 16, Paragraph 2 of the Subcontracting Act includes provisions to reflect material price increases, but since it only allows for applications and claims without mandatory payment, it lacks effectiveness."

There were also calls to restrict exports of domestically produced construction materials. Kim Sang-soo, President of the Korea Construction Association, stated, "To expand cement supply, various measures such as diversifying import sources of bituminous coal (a raw material for cement production) are necessary," and requested, "Please restrict the export of cement, which averages about 360,000 tons per month." He also mentioned shortages of sand and gravel and called for easing regulations related to sea sand and gravel extraction.

In response, Minister Won Hee-ryong of the Ministry of Land, Infrastructure and Transport said, "We will improve related systems to ensure that the sharp rise in material prices is promptly reflected in construction costs," and announced countermeasures in four areas: private housing construction, public construction, private construction, and technology development support.

Regarding private housing construction, he said they will create reasonable conditions for construction cost estimation and reduce interest and fee burdens on housing supply businesses to minimize supply disruptions. Especially for projects where pre-sale has not yet started, measures will be prepared to promptly reflect material price increases in construction costs. This will be included in the pre-sale price ceiling system improvement plan scheduled for announcement in June.

For private projects where pre-sale has already been completed and subcontract changes have been made so that the original contractor bears more than half of the total construction cost increase, efforts will be made to ease the burden on businesses such as fees and loan interest rates to encourage voluntary subcontract payment adjustments. For projects constructing private pre-sale housing with loans from the Housing and Urban Fund, efforts will be made to reduce loan interest rates until repayment after pre-sale.

In the public sector, the Public Procurement Service will promptly reflect price increase factors for each material in delivery prices to ensure timely delivery of government-supplied materials. In the private construction sector, a material production and distribution information system will be established. Additionally, for redevelopment projects, revisions to the "Standard Construction Contract for Redevelopment Projects" will be promoted together with Seoul City to facilitate active contract amount adjustments due to price fluctuations after construction commencement.

These measures are expected to lay the groundwork for resuming construction at sites nationwide where work has been delayed due to conflicts over increased construction costs. However, since the soaring costs will be fully reflected in project expenses, an increase in private apartment pre-sale prices is also anticipated.

Regarding this, Minister Won said, "While it is necessary to reasonably reflect raw material price increases in construction costs, system improvements and efforts are needed for all economic actors to share the burden together." He added, "It is not desirable to unilaterally pass on price increases to the public and consumers," and said, "The government will actively reflect voices and suggestions from construction sites but should not solely represent industry interests." He emphasized, "Along with cost reduction efforts, everyone should move toward supplying good quality housing at more reasonable prices to the public."

In this context, the construction industry plans to strive to reduce construction costs by discovering low-cost, high-efficiency alternative materials through independent research and development and developing new construction methods. The government will actively promote research and development (R&D) such as new construction methods and new construction material development to support private efforts to reduce construction costs.

Kwon Hyuk-jin, Director of Construction Policy at the Ministry of Land, Infrastructure and Transport, said, "Through stable construction material supply via supply chain inspections, cost reduction efforts such as applying new construction methods, appropriate reflection of construction costs, and expanded government support, the shock of cost increases will be shared by contractors, clients, and the government," adding, "We plan to minimize construction cost and pre-sale price increases while steadily promoting the supply of 2.5 million+α housing units."

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