Pohang and Jeonju's Sub-5 Billion Won Apartments Vanish Amid 40% Surge in Cement Prices and Skyrocketing Labor Costs

South Korea: The skyrocketing costs of construction, primarily due to a 40% increase in cement prices over the past three years and continuous rises in material costs and wages, have pushed apartment offering prices beyond the reach of key demand groups, notably newlyweds.

Pohang and Jeonju's Sub-5 Billion Won Apartments Vanish Amid 40% Surge in Cement Prices and Skyrocketing Labor Costs
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The surge in construction costs, fueled by a 40% increase in cement prices over the last three years alongside escalating material costs and wages, has led to a dramatic rise in apartment offering prices across South Korea, pushing the dream of homeownership further out of reach for many, particularly for newlyweds. An employee residing in Cheonan, Chungnam, expressed despair upon discovering the offering price for a new Hillstate Doojeong Station apartment, which was set at 550 million won for a unit sized at 84㎡, catering to newlyweds. This price, considered alongside acquisition taxes and option fees, is expected to exceed 600 million won, highlighting the affordability crisis facing potential homeowners outside Seoul.

As of 2022, the national average offering price for apartments sized at 84㎡ reached 576 million won, marking a 30% increase from five years prior. This escalation in offering prices is attributed largely to inflated construction costs. Previously, land prices were the main driver behind increasing apartment prices, particularly in Seoul and the surrounding metropolitan areas, prompting the government to attempt price suppression through measures like the price ceiling system. However, the current rise in offering prices is primarily due to increased material costs and wages, with cement prices, a key construction material, having risen by more than 40% in recent years.

The increase in construction costs affects both Seoul and regional markets, with the impact potentially more pronounced in regions where the proportion of land costs in the total offering price is lower. Consequently, any fluctuations in construction costs can significantly impact offering prices, making sub-5 billion won apartments virtually extinct.

This scenario has placed newlyweds, a primary demand group for new housing, in a particularly difficult position. Despite government efforts to expand special allotments for newlyweds and support them with lower interest rates, the sheer rise in offering prices has led to a noticeable decline in applications from young couples. This trend is evident across various regions, with several newlywed special allotment apartments experiencing undersubscription.

The situation reflects broader affordability and accessibility challenges within the South Korean housing market, underscoring the need for comprehensive strategies to address the growing disparity between housing costs and average incomes, particularly among younger populations and newlywed couples.

Source: Maekyung