Jusan연 "Urgent Need to Realize Standard Construction Costs for Rental Apartments... At 55% Level of Sale Apartments"

15-Year Increase Rate of Basic Construction Costs
Sale Prices Up 70.4%, Rentals Up 21.8%
"Housing Providers Reluctant to Build Rental Units"
To Achieve Construction Targets During Market Slump
Supply Must Increase by Realizing Standard Construction Costs

[Asia Economy Reporter Hwang Seoyul] The Korea Housing Institute (hereinafter referred to as KHI) has argued that it is necessary to rationalize the construction cost standards for rental apartments. This, they explain, can contribute to maintaining housing supply volumes and stabilizing rents during housing market downturns.

On the 11th, KHI stated, "Through the rationalization of construction cost standards for rental apartments, it is possible to maintain a stable housing supply volume even during housing market downturns and contribute to rent stabilization," adding, "The Yoon Seok-yeol administration, which is leading private sector revitalization, should boldly rationalize the standard construction costs for rental apartments from a macro perspective."

KHI claimed that successive governments have avoided timely increases in the upper limit price of construction costs for rental apartments under the pretext of stabilizing housing for low-income households, resulting in prices being set excessively low. According to KHI, as of April this year, the upper limit price for construction costs of rental apartments is at 55% compared to sale apartments. Since the reintroduction of the private apartment price ceiling system in 2007, which had been abolished as a measure to overcome the foreign exchange crisis, successive governments have raised the basic construction costs for sale apartments 32 times, averaging twice a year over the past 15 years, by 70.4%. In contrast, the standard construction costs for rental apartments have only been increased twice by 21.8%, citing tenant housing stability as the reason.

Because of this, there is a view that negative perceptions of rental apartments are worsening and that it is becoming difficult to proceed with redevelopment projects. KHI said, "Although most construction contents such as foundation, framework, and finishing of rental apartments are no different from those of sale apartments, the construction cost recognition standards are too low, leading to persistent issues of poor construction and safety," adding, "It is currently impossible to improve the negative perception of rental apartments."

They continued, "The public purchase price for mandatory rental housing in redevelopment projects also applies the standard construction cost, which is less than 55% of the construction cost burden on union members, causing significant problems such as construction and sales delays," and "Not only private developers but also public enterprises like the Korea Land and Housing Corporation (LH) are reluctant to build public rental housing due to accumulated deficits."

Furthermore, they pointed out that since 2010, the standard construction cost for rental apartments has remained below 75% compared to sale apartments, leading to a sharp decline in rental apartment construction volumes and a reduction in sale conversion volumes subject to the same standards. The number of permits for private construction public rental housing was 399,090 units supplied between 1996 and 2000, but only 77,638 units from 2011 to 2015, and 23,503 units from 2016 to 2020. Sale conversion volumes were 313,364 units supplied between 2006 and 2010, but have remained just above 100,000 units since 2011.

KHI emphasized that to achieve the government's five-year supply target of 2.7 million units, public sale and rental housing must be increased through the rationalization of the standard construction costs for rental apartments. KHI said, "The housing market will not escape the recession phase at least until the end of next year," adding, "During the initial three years of the housing market downturn phases caused by two economic crises over the past 30 years, the average annual construction volume was only about 380,000 units." They further added, "In such a situation, even if groundbreaking measures to revitalize private supply are introduced, private construction will shrink, so if supplemented by public sale or rental housing, achieving the construction target will be difficult."

Additionally, KHI explained that raising construction cost standards does not affect rent or inflation. "Even if the construction cost standards for rental apartments are raised, the increased standards apply only to newly built rental apartments after the announcement date and do not affect rents of existing rental housing," they said, adding, "Since the rent component of the inflation rate announced by the Statistics Korea is surveyed based only on existing fixed samples, it does not affect the inflation rate."

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