Government's 230,000-unit housing push lifts hopes for building materials sector

The government's announcement of a plan to supply more than 230,000 housing units across the Greater Seoul area has drawn growing attention from the building materials industry. If the expanded housing supply translates into actual ground-breakings, demand for construction materials such as windows, flooring and insulation is expected to rise — offering a long-awaited tailwind for a sector that has struggled through a prolonged slump.

According to industry sources Friday, the government unveiled its Aug. 13 real estate package, pledging to supply a total of "230,000-plus" additional housing units in the metropolitan area, including 100,000 units on newly designated public land. The government also said it plans to accelerate supply from existing public housing sites and urban redevelopment projects.

What the building materials industry is watching most closely is the push to speed up ground-breakings. The government said it will cut the average time from site announcement to actual construction on public housing projects from 68 months to about 37 months — a reduction of roughly 31 months. Ground-breaking schedules for 89,000 units on metropolitan-area public housing sites, including the third-generation new towns, will also be moved up by as much as one to two years.

Building materials companies have struggled for years as the real estate downturn and a drop in new housing starts weighed on the sector. A slowdown in new projects by construction companies, combined with rising raw material costs and labor expenses, hit the business-to-business construction materials market. Products such as windows and flooring supplied to residential construction sites are particularly sensitive to the volume of new ground-breakings.

In response, building materials firms have in recent years leaned on remodeling demand to offset weakness in the new housing market. LX Hausys saw its business-to-consumer sales of windows and flooring expand in the second quarter of this year on the back of renovation demand, improving results in its building and decorative materials division. The company posted second-quarter sales of 939.7 billion won ($664 million) and operating profit of 54.9 billion won, up 14.7 percent and 329 percent, respectively, from a year earlier. The company flagged "delays in new housing supply" — alongside loan regulations and interest rate burdens — as a key source of uncertainty for the housing market outlook, citing the slow recovery in the new-build segment.

KCC faces a similar situation. Its building materials division has been hurt by declining housing starts and move-in volumes. In the second quarter, expanded sales of insulation for industrial facilities helped support the division's results, but demand for residential building materials remained weak. KCC also views the construction downturn and uncertainty stemming from real estate policy as major variables for its building materials business.

Against that backdrop, the industry has welcomed the government's commitment in this package not only to expand new housing supply but also to bring forward ground-breaking timelines on existing public housing sites. If new construction activity recovers on top of existing home transactions and remodeling demand, it could revive the residential business-to-business building materials market, which has lagged in recent years.

"Expanded housing supply is being read across the industry as a positive signal, given its potential to lift building materials demand alongside a broader construction recovery," an industry official said. "The sector has been under sustained pressure from rising raw material costs and the construction slump, so we're hoping this policy will serve as a catalyst to reinvigorate the market."

However, the government's supply plan will not immediately translate into improved earnings for building materials companies. New housing sites must still go through land compensation and permitting processes, and even after construction begins, the timing of when different materials are needed varies — meaning there will be a lag before any benefit shows up in revenue. Uncertainty surrounding the construction sector also remains, including rising construction costs and deteriorating project economics for builders.