The Construction Crisis: Building Under Pressure
Last January, Shindongah Construction, a mid sized construction company, filed for court receivership with the Seoul Central District Court after failing to overcome its financial struggles. This adds to a string of construction firm bankruptcies since last year, fueling concerns over the industry’s decline. Given the current situation, the Sungkyun Times (SKT) plans to examine the causes of its downturn and possible paths to recovery.
Foundation of Today’s Skylines
-Blueprints for Growth
South Korea’s construction industry began with simple housing projects and expanded through technological and regulatory improvements. Until 1945, the sector was undeveloped, and only a few domestic companies existed. However, from the 1960s to 1970s, technology and licensing standards were strengthened under the Five-Year Economic Development Plan and construction law reforms, driving industry growth. In the 21st century, the paradigm shifted to energy-efficient construction, with the ratio of construction investment to gross domestic product (GDP) standing at around 15% until the 2008 global financial crisis triggered a decline. While the industry showed signs of recovery after 2013, its GDP share had already dropped to 4.5%, and the COVID-19 pandemic led to its first revenue drop since the 2000s, leaving the market in a subdued condition. Despite its slowdown, the industry is still influential among related sectors such as manufacturing and services. A January report from the Korea Institute for Industrial Economics and Trade (KIET) estimated that an additional ₩5 trillion in construction investment would influence employment by 58% in construction and by 42% in related sectors. The KIET also projected that the mass use of materials such as steel, cement, and machinery in construction could stimulate output up to ₩5.58 trillion in affiliated industries, stressing its economic significance. Though fluctuating, the construction industry remains a significant pillar in Korea’s economic development.
-Construction on Hold
Although the construction industry has driven economic growth and housing stability, it is currently facing difficulties. In Korea, construction businesses must comply with the Framework Act on the Construction Industry, which sets registration standards. To acquire the license, companies must meet sector-specific requirements in technical expertise, capital, facilities, equipment, and office space, depending on whether it belongs to the general or specialized construction sector. However, there has been an overall depletion in new business registrations due to the shrinking construction market. According to the Knowledge Information System of Construction Industry (KISCON), as of October 2024, only 375 general construction firms were newly registered, a 59.37% drop since October of the previous year. Fewer projects reduce housing supply and thus increase residential expenses, worsening socio-economic strains such as wage pressures and low birth rates. Furthermore, construction firm bankruptcies have been rising over the years. Money Today reported in January that 149 construction firms filed for bankruptcy between 2019 and 2024. When firms collapse, construction is disrupted, and the firm goes through a process similar to corporate insolvency, where the buyer is obliged to decide whether to seek a refund or resume construction. As these cases increase, the recession in construction continues to deepen.
Uncovering the Building Blocks
-Investment Drought
The primary driver of the construction downturn is the reduction in investments resulting from rising costs that weaken profitability. Economic uncertainties that lead to high interest and inflation rates have reduced demand for real estate projects, while the surge in raw material prices further stagnated the industry’s momentum. The Construction and Economy Research Institute of Korea (CERIK) reported that construction investment declined by 1.4% in 2024 and is expected to decline by 2.1% this year, exacerbating the recession. This could reduce infrastructure budgets, limiting public projects in the housing and civil engineering sectors. In the case of private construction, delays in facility investment may worsen the situation. In addition, stricter government regulations have further dampened the market. In 2024, the expansion of stressed debt-to-service ratio (DSR) regulations tightened loan limits and increased repayment burdens, dropping housing demand and transactions. Following this, the monthly apartment sales in Seoul plummeted from 9,518 in July to a record low of 3,773 in November 2024, as stated by the Ministry of Land, Infrastructure, and Transport. It also announced that nationwide housing transactions fell by 13.2% from October to November. A continued decline in transactions leads to an increase in operating costs and shrinks profit margins, making it difficult for construction firms to secure proper funding. As a result, the construction slump persists, amplifying supply shortages and economic concerns.
-Deficit in Young Workforce
The construction workforce consists of engineers and on site workers. However, there is a growing shortage of young workers at construction sites. According to Statistics Korea, the number of young construction employees declined by 37,000 as of May 2024 compared to the previous year. Moreover, CERIK reported that the average age of construction engineers increased from 38.1 years in 2004 to 51.2 years in 2024. This declining trend in young workers can be associated with their avoidance of demanding physical labor. In an interview with the SKT, Professor Kim Yea-sang of the Department of Architectural Engineering at Sungkyunkwan University (SKKU) expressed, “While there is a sufficient amount of young workforce joining construction companies, most tend to avoid working at construction sites as it involves physically demanding labor.” Beyond this, the high risk of industrial accidents also deters young workers. A 2024 report by the Ministry of Employment and Labor on industrial accidents occurring from January to September recorded 250 construction-related deaths, significantly higher than in other industries. Therefore, young workers are not inclined to work on-site as they seek a less challenging yet safer job inside the industry.
Rebuilding the Industry
- Strategic Cost Management
Cost management and price stabilization in construction projects are crucial to bringing in investment. At a seminar by the Korea Institute of Construction Engineering and Management (KICEM) in December 2024, experts emphasized the need for continuous raw material management, construction contract adjustments, and response to price fluctuations to counter declining investment. This can minimize the burden of unexpected cost surges and create a stable environment for potential investors. For example, there was an increase in escalation clauses in contracts after the COVID-19 pandemic in the United States, allowing for fair cost distribution between parties when unforeseen expenses arise. Additionally, construction firms need to adopt strategies based on government policy shifts. A 2024 report by the Korean Road Association on the construction industry mentioned the importance of strengthening performance-driven strategy, risk management, resource efficiency, and organizational management to prepare for government policy changes. Accordingly, companies should reassess low-profit projects affected by regulations, prioritize policy-aligned ventures to improve profitability, and strengthen management of key risks and operations to maintain stability amid the changes. Furthermore, institutions such as the Korea Institute of Civil Engineering and Building Technology and the Construction Association of Korea must proactively forecast and establish response frameworks to effectively navigate the shifting policies and environments.
-Safeguarding the Next Workforce
As for attracting young workers, construction companies should foster communication with young employees, curating an approachable image. For example, Hyundai Engineering utilizes entertaining YouTube content for application tips and for introducing partner companies, to promote a positive and welcoming image to young engineering recruits. Additionally, workplace safety is an important aspect that should be prioritized as well. For instance, initiating a program for construction firms to certify their safety could be beneficial, as seen with Singapore’s bizSAFE program, which reduced construction-related accidents by providing recognition to certified companies. Prof. Kim also emphasized the need for expertise transfer programs, stating, “What is more important than investing in new workers is the need for a system that can transfer and educate the technologies and skills the country’s construction professionals have had so far to the next generation.” Thus, embracing these solutions in Korea would create safer work environments and build trust within the industry, boosting youth interest in construction and ensuring a more skilled workforce in the future.
The construction industry is more than just bricks and concrete — it is the foundation of tomorrow’s homes, cities, and skyscrapers. Yet today, it stands on fragile scaffolding with its progress slowed. Therefore, now is the time to rebuild towards a stronger and more reliable industry that does not merely construct buildings but can endure the test of time and its uncertainties.