LH overhauls construction cost formula, targets W400b in savings by 2030

Introduction of 'expected contract unit price' comparison

and expansion of standard market price coverage

The headquarters of Korea Land and Housing Corporation (LH) in Jinju, South Gyeongsang Province [Korea Land and Housing Corporation website]

Korea Land and Housing Corporation is overhauling the way it calculates construction costs for public housing projects, in line with the government's housing supply expansion policy. The changes are expected to save 45.1 billion won ($33.2 million) this year alone, with cumulative savings projected to reach around 400 billion won by 2030.

LH announced Monday that it had developed and would begin applying a revised framework for using standard market prices, designed to eliminate unnecessary cost increases at the design stage and ease the growing financial burden from rising material and labor costs.

Under the previous system, LH simply compared standard unit prices with standard market prices and adopted whichever was lower as the design unit price. Critics noted, however, that when a standard market price was applied, bidding companies were required to submit that exact figure, making it difficult for more price-competitive firms to win contracts.

In response, LH introduced a new benchmark called the "expected contract unit price," calculated by applying the previous year's average contract award rate to the standard unit price. This figure is then compared against the standard market price, and the lower of the two is adopted as the design unit price. The change is intended to bring actual contract prices down while significantly broadening opportunities for price-competitive firms to participate.

LH is also substantially expanding the range of items subject to standard market price comparisons. Previously, the comparison applied only to select items within standard composite unit prices. Going forward, it will extend to site-specific special composite unit prices as well. As a result, construction work that had previously been bundled together — making standard market price comparisons impractical — can now be assessed at the individual item level with greater precision.

LH applied the new criteria on a trial basis to its second-half order volume for this year — 34 blocks totaling 19,677 units — and confirmed total savings of 45.1 billion won. The breakdown shows 27.8 billion won from the expanded item coverage and 17.3 billion won from the revised calculation method. Taking into account construction volumes scheduled from 2027 through 2030, LH estimates cumulative savings will reach 397.7 billion won.

"We will continue to expand the items subject to standard market pricing and refine the calculation method to secure an appropriate budget," an LH official said. "The savings will be actively channeled into expanding the supply of public housing."

Meanwhile, LH launched a public call earlier this month to purchase 500 billion won worth of land for public stockpiling to manage supply and demand, and will begin accepting applications Tuesday.

hwshin@heraldcorp.com