Despite the construction downturn, public housing construction costs are rising sharply as inflation pushes up prices for raw materials and labor. Public housing touted a "good sale price" in the 300 million–400 million won range at the time of advance subscription, but with construction costs climbing, total project costs have risen by more than 60% in some cases, and sale prices are expected to rise as well.
On the 15th, according to the Ministry of Land, Infrastructure and Transport (MOLIT) and Korea Land & Housing Corporation (LH), the Ministry of Land, Infrastructure and Transport (MOLIT) approved a change to the public housing construction plan that raises the project cost for the Incheon Gyeyang A9 block to 281.3 billion won from the previous 173.4 billion won. That is an increase of 107.9 billion won (62.2%) from the original plan.
The Incheon Gyeyang A9 block is a third new town project supplying nine apartment buildings, two basement levels to 15 stories, and 475 households on a total floor area of 66,867.25 square meters in parts of Gyeyang-gu, Incheon. It will be supplied as a Newlywed Hope Town. The project period runs through Dec. 2028.
Not only this site, but the expense of most public housing projects also increased last year. At the Jinjeop 2 District A3 block in Namyangju, Gyeonggi, slated for a Newlywed Hope Town, the project cost rose to 175 billion won from the previous 104.4 billion won, up 70.6 billion won (67.7%). At Hwaseong Dongtan 2 A78 block, the project cost also increased to 581.9 billion won from the previous 456.2 billion won, up 125.7 billion won (27.5%).
The reason project costs increased like this is that, five years after the plan was released, construction costs such as labor and materials rose sharply. Expenses tied to tighter safety regulations also went up. In the second half of last year, the LH housing construction cost index for for-sale dwellings was tallied at 122.05. That was up 0.53% from the previous half, and up 22.05% from the second half of 2020. The construction cost index for rental dwellings was 122.83, up 0.59% from the previous half and up 22.83% from the second half of 2020.
The LH housing construction cost index measures period-by-period changes in construction costs invested in multifamily housing construction. It uses the second half of 2020 as the base (100).
The problem is that rising project costs can be passed on to sale prices. At the Uijeongbu Ujeong A-1 block last year, project costs climbed 43.6% to 271.2 billion won from 188.8 billion won due to higher construction costs and project delays, pushing up sale prices. At the time of advance subscription, the estimated sale price for an exclusive 59 square meters unit was 333.61 million won, but the sale price at the main subscription rose to about 390.75 million won, an increase of roughly 57 million won.
At the Goyang Changneung A4, S5 and S6 blocks, the sale price at the main subscription also rose by up to about 100 million won compared with the estimated price at the advance subscription. As prices rose from the advance subscription stage, many advance subscription winners gave up their main subscriptions.
At the Incheon Gyeyang A9 block as well, sale prices are expected to rise in tandem as project costs increase. When advance subscriptions were held in 2021, the estimated sale price for an exclusive 55 square meters unit was set at 339.13 million won. However, with project costs climbing sharply, a rise in sale prices at the main subscription scheduled for March this year appears unavoidable.
However, as the greater Seoul real estate market is trending upward, the Incheon Gyeyang A9 block is also expected to be priced below market levels, so the rate of giving up advance subscriptions is unlikely to be as high as last year.
LH says it aims to ensure the burden of higher project costs is not shifted to the public. An LH official said, "The Incheon Gyeyang A9 block applied for project approval in 2021, and since then not only construction costs but also compensation unit prices have risen significantly, pushing up project costs," and added, "However, this block is subject to the price cap on sales, and sale prices are set considering surrounding market prices and appraised values, so it is hard to say the entire increase in project costs will be passed on to sale prices."