The construction costs for public housing projects in the Incheon Geomdan area, involving private construction companies, have risen by over 50% in five years. After establishing the basic project plan, the costs were recalculated at the point of actual construction, revealing significant increases in material costs, labor costs, and other construction expenses. This trend is not limited to the Incheon Geomdan area; most recently approved public housing projects are seeing similar increases in costs. There are concerns that these increases may be passed on to the sale prices of some public housing units.
According to the Ministry of Land, Infrastructure and Transport on the 2nd, the government announced that it approved a change to the project plan for the Incheon Geomdan AA19BL private participation public housing construction project on December 31. The revised project plan sets the construction cost for the Incheon Geomdan AA19BL district at 340.18575 billion won, which is an increase of 122.84568 billion won (56.5%) compared to the project cost of 217.34006 billion won established in December 2019. The project costs have increased by more than half compared to the initial plan. The project duration has also extended from December next year to September 2027, adding 1 year and 9 months.
The Incheon Geomdan AA19BL project is a public housing construction project with private participation to build six apartment buildings (991 national rental units and 332 permanent rental units) on 43,201 square meters within the Incheon Geomdan land development area. The project has been contracted to DL E&C, Kumho Industrial, and HJ Industrial.
The significant increase in project costs for the Incheon Geomdan public housing project compared to the initial planning stage is due to changes in market conditions, including the rise in construction costs. The prices of materials necessary for construction have surged due to the COVID-19 pandemic and unstable international circumstances. Although the increase in public housing construction costs is more limited than in the private sector, the steep rise in material costs and labor costs is pushing the project costs upwards as well.
According to the 'Housing Construction Cost Index' released by the Korea Land and Housing Corporation (LH), the rental index for the second half of last year recorded 121.04, and the sales index was 120.46. This represents increases of 21.04% and 20.46%, respectively, compared to the second half of 2020. LH's housing construction cost index measures the rate of change in the cost of construction (the sum of direct and indirect construction costs) for multi-family housing projects on a semi-annual basis.
An LH official noted, "The basic plan developed at the time of project approval uses the estimated amount based on construction costs at that time as the project cost." They explained, "As the project progresses and detailed designs are made, the project costs increase due to the reflection of areas not captured in the basic design and the rising construction costs." The official added, "In light of the substantial increase in construction costs over the past 4 to 5 years in Incheon Geomdan, these factors appear to have contributed to the rise in project costs."
Other public housing projects outside the Incheon Geomdan development are also experiencing significant cost increases. The S5, S6, and A4 blocks within the Goyang Changneung public housing district also had their project plans approved, with costs rising from a total of 983.1 billion won to 1.2608 trillion won, an increase of approximately 277.7 billion won (28.8%).
With the increase in project costs for these public housing units, there are ongoing concerns that sale prices could rise consecutively as well. In fact, in the Incheon Gyeongyang A2 block, the sale price increased from 490 million won during pre-subscription to 570 million won for the official subscription due to rising project costs. Consequently, 41.8% of those who won the pre-subscription canceled their official subscription. Particularly, as the government announced on the 24th that it would normalize public sector construction costs during the inflationary period to boost the vitality of the construction industry, the rising trend in sale prices due to increased public housing project costs is expected to continue.
Lee Eun-hyung, a research fellow at the Korea Construction Policy Institute, stated, "The increase in project costs due to rising land and construction costs will ultimately lead to higher sale prices," adding, "Given that construction costs are rising, it is not possible to limit sale prices."