Emergency support urged to save Korea’s ailing construction industry

Son Sung-yeon

The author is a Vice Chair of the Gyeonggi Chapter, Korea Construction Association and CEO of CNC General Construction.

Korea’s construction industry, which accounts for 15 percent of the country’s GDP and more than 20 percent of regional economies, employs over two million people and underpins national development. But warning signs are flashing across construction sites nationwide. Since the beginning of this year, nine mid-sized construction companies, including Shindongah Construction, have entered court-led debt restructuring. More than 200 general contractors filed for business closure in the first quarter alone. These failures have triggered cascading crises for subcontractors and material suppliers, with small and mid-sized firms, especially those rooted in local communities, struggling to survive.

As of March, Korea had nearly 69,000 unsold housing units, including over 25,000 that remained unsold even after completion — a 13-year high. Having worked in the industry for more than 30 years, I lived through the 1997 Asian financial crisis, the 2008 global financial crash and the Covid-19 pandemic. But I have never seen the entire sector so comprehensively frozen.

The root of the current crisis lies in soaring raw material costs, driven by the Covid-19 pandemic and the war in Ukraine. Simultaneously, private construction activity has dried up due to an economic slowdown, and public infrastructure investment has also contracted. It is a crisis with no clear exit.

The incoming president must prioritize revitalizing construction investment as a core policy. This includes expanding investment in social overhead capital (SOC), adjusting outdated standards for public project cost estimation, and managing risk in project financing (PF) to stabilize the private sector. Securing adequate construction costs must be the top priority.

Unrealistically low project budgets are the most urgent and fundamental issue. Current bidding prices often fall below 90 percent of actual construction costs. The industry argues that construction budgets must increase by at least 15 percent to meet a sustainable level.

The government has acknowledged the issue and recently announced a plan to normalize construction pricing. However, current measures fall short of rescuing the industry from collapse. A thorough overhaul of construction cost guidelines is needed. If profit margins are not guaranteed, construction quality will suffer and work force and material standards will decline. This raises the risk of illegal subcontracting, faulty work and safety incidents. In the long term, inadequate investment will result in higher maintenance costs, public inconvenience and human casualties.

Low budgets are also driving skilled workers away from the sector, accelerating an aging work force and the erosion of technical expertise. This is more than an industry-specific problem — it is a national infrastructure risk.

Despite the gravity of the situation, current policy and industry practices do little to guarantee proper construction compensation. The government’s shortsighted focus on cost-cutting sacrifices the long-term quality of public infrastructure. As a result, more companies see public projects as unprofitable, avoiding participation altogether.

The private sector faces even more severe difficulties. Stricter labor regulations and the Serious Accidents Punishment Act have raised construction costs. Yet redevelopment associations often reject necessary price increases, leading to legal disputes and construction delays. In many cases, poor profitability results in failed bids and suspended projects. Korea’s national contract law must be revised to mandate additional payments when long-term projects extend beyond their original timelines.

Privately funded infrastructure projects are also stalling due to inadequate budget adjustments. Rising construction costs and high interest rates are not reflected in total project budgets. As a result, projects like GS E&C’s withdrawal from the Wirye-Sinsa light rail line and delays in the GTX-C express train line highlight the mounting pressure.

Securing reasonable construction costs is not simply about saving companies. The construction sector plays a foundational role in supporting all other industries and ensuring residential stability for the public. Without timely intervention, the ripple effects could undercut national infrastructure for years to come.

Translated from the JoongAng Ilbo using generative AI and edited by Korea JoongAng Daily staff.