“A Solution to Construction Cost Burdens in Small-Scale Housing Maintenance: Pilot Application of Specialty Contractor Participation Needed”

Korea Institute of Construction Policy Report
Repeated Delays Due to Lack of Profitability
Only 36 Companies Hold All 5 Core Construction Specialties
Proposal to Begin Verification with Self-Governing Housing Maintenance Projects

Small-scale housing maintenance projects, which focus on renovating aging low-rise residential areas, are gaining attention as an alternative for housing supply. However, due to insufficient profitability and rising construction costs, repeated delays and suspensions are occurring at project sites. There are concerns that the current approach, which is centered on general construction companies, has limitations, and thus there is a need to consider expanding participation by specialty contractors.

According to the Korea Institute of Construction Policy (KICP) on May 3, Koh Hahee, Associate Research Fellow at KICP, suggested in her recently published report, “A Study on the Potential Participation of Specialty Contractors through Analysis of Small-Scale Housing Maintenance Cases,” that specialty contractors meeting certain requirements should be allowed to move beyond simple subcontracting and participate directly in projects such as self-governing housing maintenance initiatives, through pilot projects.

Before and after comparison of the street house maintenance project in Wonjong-dong, Bucheon-si, Gyeonggi Province. Korea Construction Policy Institute

Small-scale housing maintenance projects aim to improve residential environments in deteriorating neighborhoods where large-scale redevelopment or reconstruction is difficult to apply. These projects serve as an alternative means of housing supply, introduced in response to the shortage of large-scale development sites and the growing demand for urban regeneration. The institutional foundation was established with the enactment of the “Special Act on Vacant Houses and Small-Scale Housing Maintenance (Binso Act)” in 2017. The projects are classified into four types: self-governing housing maintenance projects, street housing maintenance projects, small-scale redevelopment projects, and small-scale reconstruction projects.

Although their policy importance has increased due to the potential for rapid housing supply within cities, the actual results have not kept pace. From 2018 to 2021, there were only 44 cases of such projects completed nationwide. The small scale of these projects limits the volume of general pre-sales, and when construction costs rise, the burden is directly transferred to the association members. As a result, delays in selecting construction companies or outright project cancellations have been repeatedly occurring.

The report concluded that these limitations can be addressed if specialty contractors possessing a certain range of core construction capabilities participate directly in the projects. If a specialty contractor becomes the primary contractor and integrates the main construction processes, the structure of project execution is simplified, and the connectivity between processes is strengthened, leading to substantial construction cost savings. Currently, the structure where general contractors win the contracts and then subcontract to specialty companies results in additional management fees and profits, effectively serving as intermediary commissions. If specialty contractors act as primary contractors, these intermediate costs disappear, and direct decision-making as well as control over manpower and equipment—optimized for small-scale sites—can improve construction efficiency.

Status of Industry Registration by Major Construction Types. Korea Specialty Contractors Association

According to an industry analysis of construction capabilities, only 36 companies nationwide (0.1%) are capable of performing all five core processes of residential construction (reinforced concrete, interior construction, plumbing and drainage, metal windows and roofing, painting/plastering/waterproofing). Although this figure represents just 0.1% of all companies, the Korea Institute of Construction Policy pointed out the significance of this elite group with the potential to comprehensively handle the processes required for small-scale residential construction. Associate Research Fellow Koh stated, “Small-scale residential construction features a high degree of interconnection between processes, so if these companies bundle and execute the core processes, they have the potential to participate as a single project entity.” She also noted that companies holding licenses for reinforced concrete works, which form the building’s structural frame, account for 25.5% of all companies (12,485 firms), indicating that the basic conditions for securing project implementers through pilot projects are in place.

Currently, the specialty construction sector is facing challenges securing stable profits solely through the traditional subcontracting structure, due to intensified competition and a sluggish construction market since the relaxation of business scope regulations. After the 2018 revision of the Framework Act on the Construction Industry, mutual market entry between general and specialty contractors became possible from 2021, but the scale of general contractors entering the specialty construction market is overwhelmingly larger. Accordingly, small-scale housing maintenance projects are being evaluated as a new business domain for specialty contractors to explore.

Associate Research Fellow Koh stated, “After the business scope regulations between general and specialty contractors were lifted, competition intensified, making it difficult for specialty contractors to survive with the traditional subcontract-based structure alone. Small-scale housing maintenance projects, given their relatively small size and varied implementation methods, offer a new market for specialty contractors to enter.” She added, “In project types with simple processes, such as self-governing housing maintenance projects, if specialty contractors bundle and execute the core processes, both efficiency and stability can be enhanced. It is necessary to verify the feasibility of this approach through pilot projects.”

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