The True Nature of the Controversy over LH’s Land Sales: The Structure of Development Profit Recovery and the Fiscal Dilemma

For those looking to buy a home, public housing sites supplied by the Korea Land and Housing Corporation (LH) often create an impression of being relatively affordable due to their "public" designation. However, the core of the recent controversy is not that LH sells land at excessively high prices. President Lee Jae-myung pointed out at a cabinet meeting on July 19, 2025, that the practice of LH adding a certain profit margin to the price of public housing sites before selling them to the private sector is "taken for too much as a matter of course."¹ This critique targeted the business structure itself, where LH sells land and completely withdraws from the subsequent development process. Because LH currently lacks effective channels to recoup the additional profits arising when land prices rise during private development after the land sale, this issue has drawn significant attention.¹ These observations led to discussions within the LH Reform Committee, launched in August 2025, exploring options to shift from a land-sale-centric business model to one emphasizing rental or direct public development.¹ However, LH has historically covered deficits in its public rental housing operations with profits from land sales, meaning financial constraints remain a prerequisite for resolving such a shift in business approach.¹

The Origin of the Controversy: What Are the Problems with LH’s Business Model?

On August 28, 2025, the Ministry of Land, Infrastructure and Transport launched the LH Reform Committee alongside external experts.¹ Co-chaired by Lee Sang-kyung, First Vice Minister at the Ministry of Land, Infrastructure and Transport, and Professor Lim Jae-man of Sejong University, the committee operates for four months and plans to formulate specific institutional improvement and legislative reform proposals by the end of this year.¹

The central issue debated by the Reform Committee is the current method where LH prepares land sites, sells them to the private sector, and then completely withdraws from the development process. Once LH sells the land to private developers, they take the lead in subsequent development and sales. After LH exits, speculation during the development process can drive up land prices, with the increased development profits accruing to certain construction firms or homebuyers.¹ It is difficult for LH to recapture the appreciation in value that occurs after the initial land sale point.¹ Co-chair Lim Jae-man stated his commitment to creating a good plan that returns the people’s land to the people, allowing them to enjoy stable housing.²

The current discussion focuses on reevaluating from scratch LH’s business model itself, which involves developing public housing sites and selling them to the private sector with a profit margin.¹ Minister of Land, Infrastructure and Transport Kim Yun-deok stated that LH’s assets are intended for stabilizing housing for ordinary citizens and announced that the structure and methods of current public housing projects would be reviewed from the ground up.¹ This marks a stage of questioning whether public land and public housing are operating in line with their original purposes.¹

The Link Between LH’s Business Structure and Financial Situation

Currently, LH operates with a structure that covers deficits from managing public rental housing and other operations using profits generated from land sales.¹ In other words, if LH stops selling land, the funds necessary to maintain public rental housing will decrease first.¹ However, LH’s financial situation is far from comfortable. With debt already reaching 160 trillion won, securing financial health is urgent.² Furthermore, LH’s operating profits have decreased significantly in the past three years due to a construction industry downturn.¹ Given that LH’s main channels for generating revenue have narrowed, a critical variable emerges regarding who will bear the massive initial capital costs if the company transitions to a model where it retains land rather than selling it, recovering revenue through rents and other means.¹

Lee Eun-hyung, a research fellow at the Korea Construction Policy Research Institute, defined the essence of this reform debate as "whether it is possible to supply housing at lower prices."² While he noted that lowering supply prices can be positive from the consumer’s perspective, he pointed out that the supplier’s perspective requires considering both the initial upfront costs and the current deficit structure.² He explained that a shift in the business model cannot be simply assumed to lead to lower supply prices, as the required initial capital scale varies depending on the specific method of transition.²

Proposed Transition Plans and the Reality of Financial Burden

The Reform Committee is considering two major approaches for LH to recoup more development profits. The first is the 'land lease' method, where LH retains ownership of the land while leasing it to private developers and collecting rent.¹ In this scenario, the phenomenon of land reappearing on the market and development profits concentrating on specific developers can be reduced.¹ The second is the 'LH direct development' method, where LH directly leads the entire process of housing development and supply.¹ When LH executes the project directly, it has the advantage of expanding the scope of profits it can recoup.¹

Both approaches share the common goal of preventing the outflow of development profits to the private sector and reducing speculative elements. In theory, if LH develops directly or leases land, the scale of profit recoupment for the public can increase.¹ However, implementation requires essential initial financial investment, necessitating an affordable plan that accounts for LH’s declining operating profits and high debt levels.¹

A representative from the construction industry predicted that the scope of the LH reform debate will largely depend on how willing the government is to invest finances in non-profit-making projects.¹ This suggests that finding a balance between LH’s public nature and profitability is the core task of the reform.¹

This dilemma does not end as an internal LH issue. If LH stops selling public housing sites and switches to a hold-and-lease model, cash inflows for LH will decrease in the short term, potentially disrupting the securing of funds for public rental housing.¹ Conversely, if LH directly leads development, the massive project costs and risks associated with management become directly linked to LH’s financial capacity.¹ Ultimately, for the goal of lowering supply prices to be achievable, specific and clear calculations are needed regarding who will bear the initial costs and how long LH can sustain the deficit period.²

Recouping Public Profits and Financial Burden: The Solution

The criticism that LH is engaged in "land trading" is not solely due to the price at which housing sites are sold. The issue lies in the business structure where the public cannot recoup profits arising from the development process after LH sells the land.¹ The LH Reform Committee is reviewing measures to expand the recoupment of development profits, such as through land leases or LH’s direct development.¹ However, considering the reality that LH has covered public rental housing deficits with land sale profits and its debt situation exceeding 160 trillion won, initial financial investment by the government must precede any structural changes if supply prices are to be lowered.¹² Therefore, the essence of this LH reform debate can be seen as a process of deciding how directly the public should manage land and development profits, and who and how will share the costs incurred in the process.¹²