Government to reform public housing sector following construction disasters

The government plans to open up its public housing sector to private construction companies in order to reduce the dominance of LH. The move follows a series of construction disasters involving the state-run developer.

LH CEO Lee Han-jun apologizes for continued controversy over the botched construction of multiple public apartment complexes during a press conference at LH's Seoul regional headquarters on Aug. 2. [YONHAP]

Korea is set to open its public housing sector to private construction companies, aiming to curb the state-run housing developer's current dominance.

The move, spearheaded by the Ministry of Land, Infrastructure and Transport, follows a series of construction disasters involving the Korea Land and Housing Corp (LH). Most recently, an LH-built apartment in Incheon collapsed in April, stoking concerns about negligence and declining quality during construction under LH's centralized control.

The Land Ministry unveiled measures on Tuesday meant to tackle the challenges arising form LH's dominant position. The ministry hopes to dent LH's 72 percent monopoly over the public housing supply by allowing private construction companies to independently execute projects.

Future supply plans will incorporate evaluation results, enabling high-performing developers to play a more significant role in public housing projects.

“Unless LH innovates in quality and safety within the competitive landscape, the system will naturally shift toward a more private-centric structure,” stressed a land ministry official.

Furthermore, LH's authority to select contractors for design, construction and supervision, initially managed by the Public Procurement Service, will be passed to the Korea Authority of Land & Infrastructure following the legal revisions.

The ministry asserted that the comprehensive plan aims to prevent incidents like rebar omissions and mitigate LH's excessive authority, dismantling an entrenched cartel in the construction industry.

Experts recognize the newly announced measures as a fresh attempt to open public housing to private firms.

However, concerns linger about limited private participation amid a sluggish construction market, which could potentially concentrate projects among larger construction companies.

“In light of the overall deficiencies exposed in LH, there's now a drastic prescription for private involvement,” said Lee Eun-hyung, a researcher at the Korean Research Institute for Construction Policy, suggesting that “successful outcomes from diverse attempts could improve public housing quality and bring about a revitalization for LH.”

Some experts doubted the immediate impact of the policy given current unfavorable housing and construction market conditions.

“In favorable real estate conditions, private construction firms would typically embark on projects. However, at present, with challenges in extending existing bridge loans, there's a noticeable trend of businesses opting to abandon land ventures,” said Kim Jeong-ju, a researcher at the Construction Economic Research Institute of Korea.

“Currently, public housing sees active involvement from both LH and a majority of small to medium-sized construction firms. Yet, with the shift toward private involvement, there's a notable concern that prime locations might be predominantly secured by major construction companies, leading to potential decreases in opportunities for smaller players,” said Park Hap-soo, an adjunct professor at Konkuk University's Graduate School of Real Estate Studies.

BY SEO JI-EUN, BAEK MIN-JEONG [seo.jieun1@joongang.co.kr]