Despite an overall increase in construction performance, the housing sector is experiencing a decline, leading to a mixed recovery trend. Both ongoing construction performance and new contracts, which gauge future workloads, have decreased, compounded by rising construction costs. The government has lowered its projections for housing starts in the metropolitan area this year, raising concerns that the sluggish housing construction could hinder supply expansion.
According to the Korea Construction Industry Institute on October 19, construction performance in August rose by 7.4% compared to the same month last year. This figure represents actual construction work completed. In contrast, residential construction performance fell by 2.7% during the same period, indicating that the overall increase in construction activity has not translated into the housing sector.
New contracts, which indicate future construction workloads, also showed weakness. Public housing contracts in August decreased by 26.8%, while private housing contracts fell by 1.5% compared to the previous year. This stands in stark contrast to a 5.9% increase in overall public contracts. Thus, both ongoing housing projects and new contracts leading to future construction have declined.
Analysts suggest that the effects of past construction downturns are manifesting with a delay. The housing sector typically requires significant time from project initiation to actual construction, meaning that a reduction in new projects in the past could impact current construction performance.
Lee Eun-hyung, a researcher at the Korea Construction Policy Institute, stated, "Since the second half of 2022 through 2023, the construction market has deteriorated, leading to fewer new projects. As these projects reach the construction phase, the volume is inevitably reduced, making this year’s and the next two years’ construction performance critical."
The rising costs of construction further complicate the initiation of new housing projects. The construction cost index recorded 138.74 in August, with the year-on-year increase expanding from 0.9% in August last year to 6.0% this August.
The increase in construction costs can particularly burden projects in areas where demand for new housing is insufficient. Even if construction costs rise, it is challenging to reflect these increases in sale prices, making it difficult to secure profitability. If construction companies focus on selective contracts where profitability is assured, the recovery of new housing project volumes may be further delayed.
The government's plan to expand housing supply is also under scrutiny. During a regular briefing on housing supply on October 16, the government announced that the number of housing starts in the metropolitan area had surpassed 99,000 units as of the second week of October, projecting a total of 218,000 to 235,000 units by year-end. This is 33,000 to 50,000 units below the initial target of 268,000 units.
To reach the lowered projections, approximately 119,000 to 136,000 additional units must begin construction by year-end. This means that more housing units must commence construction in the remaining period than have been started so far this year. While there is a tendency for construction to concentrate at year-end, ongoing factors such as the contraction of new projects and rising construction costs raise doubts about achieving the projected targets.
The researcher noted, "While it is true that construction volumes tend to increase at year-end, it is uncertain whether they will rise to the levels projected by the government. Considering the nature of housing projects, which can take years to reach construction, securing sufficient volumes will be crucial not only this year but in the years to come."
* This article has been translated by AI.
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