Raw material prices surge as workforce ages and skilled labor grows scarce

Premium designs and tighter safety rules add to cost burden

Construction orders rise, but share converting to ground-breakings falls

The cost of building apartments in South Korea has risen more than 28 percent over the past five years, a new report shows. With raw material prices climbing, construction sites facing labor shortages and developers pushing for more upscale finishes, the pressure on construction costs shows little sign of easing — raising concerns about higher pre-sale prices, project delays and broader disruption across the housing sector.

A residential complex in central Seoul as seen from Seoul Sky, the observation deck atop Lotte World Tower in Songpa-gu. [Yonhap]
A residential complex in central Seoul as seen from Seoul Sky, the observation deck atop Lotte World Tower in Songpa-gu. [Yonhap]

According to a report released Friday by the National Assembly Budget Office — titled "2027 NABO Economic Outlook: 2026–2030" — apartment construction costs based on the Korea Real Estate Board's new building unit price table rose 28.2 percent, from 1.5 million won ($1,120) per square meter in 2020 to 1.93 million won per square meter in 2025.

Noting that the official unit price runs about 20 percent below what contractors actually charge, the budget office estimated the real cost of apartment construction at 5.96 million won per 3.3 square meters in 2020, rising to 7.63 million won by 2025 — an increase of roughly 1.68 million won over five years.

Construction costs for other types of buildings also climbed sharply over the same period. Multi-family housing costs rose 29.4 percent, row houses 27.3 percent and officetels 21.8 percent. Construction costs for neighborhood commercial facilities and factories each increased 26.6 percent.

The upward trend has continued into recent months. The construction cost index rose 5.9 percent over 11 months, from 130.91 in August last year to 138.59 in July this year. Over the same period, the building construction cost sub-index rose 4.9 percent and the civil engineering cost sub-index climbed 8.2 percent.

One of the main drivers of rising construction costs has been the surge in building material prices triggered by a series of external shocks.

The run-up began with a sharp spike in rebar prices in the second half of 2020, followed by the Russia-Ukraine war and a cement supply crisis in 2022, and the Israel-Hamas war in 2023. A spike in global oil prices tied to the Middle East conflict in March this year was also cited as a factor adding to cost pressures.

Beyond raw material prices, an aging construction workforce and a shortage of skilled workers have also pushed costs higher. With fewer experienced tradespeople available, labor productivity has declined, meaning more workers must be deployed to complete tasks that once required fewer hands.

The trend toward more upscale apartment designs has added further pressure. Premium specifications aimed at raising residential quality — including zero-energy systems, flexible floor plans and expanded underground parking — have driven up building costs. Reconstruction and redevelopment projects face additional burdens: the complexity of urban construction, waste disposal costs uncovered during site surveys, supertall building designs, demand for premium brands and increasingly elaborate community amenity spaces all push costs higher.

Reduced working hours due to expanded safety training and inspections at construction sites, along with rising statutory costs such as industrial accident insurance premiums and severance fund contributions, have also been identified as factors weighing on construction budgets.

There are growing concerns that rising construction costs will ripple well beyond higher pre-sale prices, potentially triggering housing project delays and cancellations while eroding the profitability of construction companies across the industry.

Construction investment in the first half of this year fell 1.5 percent from the same period last year, and value added in the construction sector shrank 3.8 percent. The budget office identified the sustained rise in construction costs since the early 2020s as one of the causes of the sector's prolonged slump.

Construction investment is nonetheless forecast to recover modestly next year, rising 1.5 percent from this year's level. The budget office said the recovery would be supported by government-led expansion of housing supply, the gradual progress of reconstruction and redevelopment projects, and increased investment in industrial facilities such as semiconductor plants and data centers.

Even so, elevated construction costs remain a drag on any recovery. Despite a rise in construction orders, the share of projects that actually proceed to ground-breaking has declined under the weight of cost pressures — a constraint that could limit any meaningful expansion of construction investment, the budget office warned.

"The recent increase in construction costs is the result of a combination of temporary factors — such as external shocks like the Middle East war — and structural causes including declining labor productivity in the construction industry," the budget office said. "It is unlikely to improve in the short term."


y2k@heraldcorp.com