BAI Opinion Opens Way for 3,936 Stalled Public Housing Units

The Korea Chamber of Commerce and Industry (KCCI) said on Oct. 6 that it received a positive opinion from the Board of Audit and Inspection (BAI) that project costs for private-participation public housing can be recalculated to current conditions. The opinion opens the way for construction to resume on 3,936 households in six regions, including the capital region, according to Yonhap. Dong-A Ilbo reported the same development, noting the projects had been stalled by a surge in construction costs. [ 1 , 2 ]

The projects are “private-participation public housing,” in which the public provides land and private builders handle financing, design and construction. After agreements signed between 2019 and 2021, construction costs rose about 30% during the preparation period, making it difficult to start construction at the original project cost, Yonhap reported. [ 1 ]

The government prepared a basis for cost adjustment in 2023 and recommended adjustment, but the agreements included a principle clause that costs would not be adjusted for price fluctuations. Ordering institutions could not decide due to audit burden, and a pre-consultation requested by ordering institutions last year recognized only pre-sale districts as adjustment targets, according to Yonhap. [ 1 ]

In May, BAI expanded eligibility for pre-consultation to private organizations with a legal establishment basis, such as KCCI, and KCCI applied last month for six project sites. BAI judged that while the agreements in principle restrict adjustment for price fluctuations, exceptions can be made by agreement in unavoidable cases; the government had already recognized the need for adjustment; and maintaining the agreements rather than terminating them serves the public interest in housing supply. BAI attached conditions: an adjustment cap so the public does not bear more burden than if agreements were terminated and reordered, and a final amount to be confirmed through an objective procedure. [ 1 ]

Companies would have had to bear hundreds of billions of won in losses, including invested project costs and performance guarantees, if the agreements were terminated, but the possibility of cost adjustment greatly reduces their burden. Lee Jong-myeong, head of KCCI's Industrial Growth Division, said, “Thanks to BAI opening the door to the private sector, there is one more channel to solve corporate difficulties, and the first result will lead to the public benefit of housing supply.” KCCI plans to actively use the case as a model and will screen difficulties from nationwide chambers of commerce where contracts or permits with public institutions are delayed due to legal uncertainty, and seek BAI judgment. [ 1 ]