The government's decision on the 3rd to split Korea Land & Housing Corporation (LH) in two, the first such move in 17 years, is aimed at speeding up public housing supply. LH's role is central to the plan to deliver 1.58 million homes through public-led projects by 2030, but the government has concluded that massive losses in the welfare division are creating internal conflicts that delay construction.
Data that Rep. Kang Dae-sik of the People Power Party obtained from LH showed that the actual project cost per unit of integrated public rental housing was 110 million won in 2016, of which the government covered 102 million won. Last year, the actual cost rose to 365 million won, while the government subsidy stayed at 211 million won. That leaves LH to cover the gap by issuing corporate bonds or borrowing from the Housing and Urban Fund.
The gap has piled up as debt. LH's consolidated debt stood at 173.6567 trillion won at the end of last year, up 13.5512 trillion won from a year earlier, and its debt-to-equity ratio climbed to 230.8% from 217.7%, a rise of 13.1 percentage points. The debt is projected to swell to 372.8 trillion won by 2030.
The problem is that the government did not disclose specific plans to repair those finances in the reform package. If the development corporation takes on much of the debt, it will have less capacity to invest in building homes. If rental housing debt is concentrated in the asset corporation instead, that entity, which has a weak revenue base, could grow more dependent on government funding and the Housing and Urban Fund.
The structural deficit of public rental housing, which loses money with every additional unit built, is another problem to solve. LH has covered its rental business losses with proceeds from land sales and development projects. But operating losses on rental housing grew about 2.7-fold, from 1.1706 trillion won in 2016 to 3.1949 trillion won last year.
An official in the real estate industry said, "In restructuring terms, this amounts to splitting the company into a good company and a bad company, but there is no plan for what to do with the bad company, so it is only half a reform."
It is also unclear whether the development corporation can generate enough profit. Unlike selling public land, building homes directly requires LH to spend on compensation and construction upfront and recover the costs over a long period through presales and leases. The more direct construction expands, the heavier the burden on the development corporation to raise funds for housing supply while also generating the housing welfare resources it must transfer to the asset corporation.
Attempts to split the organization have been made before. After a 2021 scandal over land speculation by LH employees, the government considered separating housing welfare from development, but never carried it out amid concerns that a downturn in the property market would worsen the welfare division's finances, and the plan faded with the change of government.
Park Jin, a professor at the KDI School of Public Policy and Management, said, "It is questionable whether separating housing construction from housing welfare functions really requires splitting the institution itself. Since it is unclear what practical benefit comes from separating the organization, the decision should be made only after examining what can be improved and whether the goals set at the time of the merger are truly no longer achievable."
Concerns are also rising that the consolidation of public institutions could ignite regional conflict. In announcing the merger of the four port authorities in Busan, Incheon, Ulsan and Yeosu-Gwangyang, the government did not disclose where the headquarters would be located or how investment and staffing would be allocated across ports. Opposition to the merger has surfaced even within the Ministry of Oceans and Fisheries, the supervising ministry, signaling friction ahead.
Six Busan-based groups, including the Council for the Development of Busan as a Maritime Capital, issued an emergency statement the same day calling on the government to withdraw the port merger plan. They said, "This decision will produce a grave policy error that shakes the international competitiveness of Korea's ports, the region's economic autonomy and the foundations of decentralization and balanced development."
Beyond the corporations, the government announced a broad reorganization of other public institutions. Exhibition and museum bodies will be consolidated and run at the ministry level. Twelve national exhibition and viewing institutions, currently fragmented into regional science museums and museums, will be organized into a council of national exhibition and viewing institutions.
Eleven mid- to large-sized institutions with at least 100 authorized staff and overlapping functions will also be reduced. The Korea Broadcast Advertising Corporation and the Korea Communications Viewer Media Foundation will merge into the Korea Broadcasting, Media and Communications Promotion Agency (tentative name), and the Labor-Management Development Foundation and the Korea Labor Education Institute will merge into the Labor-Management Development and Education Foundation (tentative name).
The Korea SMEs and Startups Distribution Center and Public Home Shopping will launch as the Small Business Marketing Promotion Corporation (tentative name), building a unified distribution platform covering everything from sourcing to selling products from smaller companies.
Seven subsidiaries of state-run financial institutions will be split into facility management units (KAMCO FMC, Yeul FMC, KDB Biz, KEXIM Plus, KODIT Operations Management) and customer management units (KAMCO CS, HF Partners), and merged into Policy Finance FMC and Policy Finance CS (tentative names), respectively.
In addition, operations of Korail and SR will be unified under Korail, while the merger of the two airport corporations will be revisited after regional airports are revitalized.
