The South Korean government is moving forward with a plan to separate the Korea Land and Housing Corporation (LH) into two distinct entities, focusing on land development and housing construction, and residential welfare and asset management. A key challenge will be defining the boundaries of responsibility between the two organizations. Public housing involves a continuous process from land acquisition to construction, leasing, and maintenance. To enhance supply speed, the division must be designed to avoid complicating decision-making processes, ensuring shared decision-making and cost responsibilities.
On September 3, the government announced a reform plan for public institutions that includes splitting LH into a 'Housing and Urban Development Corporation' (tentative name) responsible for land development and housing construction, and a 'Housing and Urban Asset Corporation' (tentative name) tasked with residential welfare and asset management. This marks the first division in 17 years since the merger of the Korea Land Corporation and the Korea Housing Corporation in 2009. However, unlike the previous system, both land development and housing construction will remain under one entity.
The government aims to improve housing supply speed and residential welfare operations by enhancing functional expertise. The Ministry of Land, Infrastructure and Transport will prepare specific organizational restructuring plans.
Despite the functional separation, there will still be points in the business process that require joint decisions from both entities. Currently, these tasks are managed internally within LH, but after the division, projects spanning both organizations may require separate negotiations and cost settlements.
A typical example is the stage of constructing and transferring housing. If the development corporation builds public rentals and the asset corporation takes over, there may be conflicting interests regarding quality, equipment standards, and transfer prices. Savings in construction costs could lead to increased management and maintenance expenses after residents move in. Therefore, the operating entity should participate from the design stage to review both initial construction costs and long-term operating expenses.
Lowering the transfer price could hinder the development corporation's cost recovery, while raising it could increase the financial burden on the operating entity. Adjusting prices between the institutions alone will not reduce overall costs. This is why the Ministry of Land must establish quality standards, transfer timing, and cost settlement criteria when determining the specific transfer methods.
Post-completion defect management follows a similar pattern. It must be decided who will request repairs and respond to residents, separate from the contractor's obligation to fix defects. Clear procedures for urgent repairs and post-settlement processes must be established to prevent residents from facing inconveniences while responsibilities are disputed.
During the land acquisition phase, decisions regarding asset management and development are intertwined. If the asset corporation manages functions like land banking and the development corporation handles actual development, the timing and pricing of land supply will be contentious issues. If financial and management costs are reflected in the supply price, the burden on the development corporation increases, while insufficient reflection leaves the asset corporation with a burden. The joint business plan and supply criteria must address who will bear additional holding costs if development schedules are delayed.
Some projects, like rental housing, are difficult to separate into construction and operation phases. This is because the process involves everything from housing selection to price evaluation, rights analysis, quality inspection, repairs, and rental operations. Particularly, new purchase agreements require a division of responsibilities connecting quality management before completion and transfer responsibilities after.
The functions of the two entities will also intertwine after housing supply. If the asset corporation manages and operates aging public rentals, the development corporation must handle their refurbishment, necessitating joint decisions on project timing, costs, and the relocation and re-entry of existing residents. There must also be a pathway for information on accumulated defects, management costs, and resident demand during operations to be reflected in the design of future housing.
Connecting with past reforms is also a challenge. To control former officials and poorly performing companies and ensure fair contractor selection, the government plans to transfer the selection and contracting of design, construction, and supervision firms for public housing from LH to the Public Procurement Service starting in 2024, while LH will manage the projects post-contract. This time, with the added boundary between development and operating entities, a design that maintains existing external oversight while preventing redundant reviews and responsibility gaps is required.
Key issues in the detailed plan prepared by the Ministry of Land will include the division of responsibilities between the two entities and the decision-making process for joint projects. When disagreements arise over land supply or housing acquisition conditions, it will be crucial to determine who will mediate and by when, as well as how to evaluate the connection between completion, operational performance, actual occupancy, and defect management.
Choi Kyung-ho, head of the Housing Neutrality Research Institute, stated, "Previously, the structure allowed the state to assign public enterprises to use profits from development for necessary areas like public housing. After the division, the development corporation will focus solely on development, while the asset corporation will manage and operate various public housing assets. In this process, the state must also prepare measures to support areas like public housing that may incur deficits."
He added, "With reduced capacity for large-scale land development following the third new town initiative, the existing paradigm of generating profits from land sales and reinvesting them into other projects has reached its limits. The division of LH can be seen as a necessary step in creating a new financial structure."
* This article has been translated by AI.
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