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2022 Dec/26
The Effect of a Rise in Property Prices on Household Assets and Liabilities and Its Implications
Issue Papers 22-27
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- Research Topic Macrofinance
- Page 22
- Summary
- This article analyzes how property price rises have affected household assets and liabilities using household microdata. Over the past several years, households have accumulated wealth rapidly on the back of price hikes in real estate. But the pace of wealth growth has been uneven depending on the size of household wealth. High-net-worth households have accumulated wealth at a faster pace with a greater contribution of property price increases compared to household income. In Korea, high-net-worth households tend to own a larger share of their total assets in real estate. For that reason, a steep rise in property prices has a larger impact on wealthy households, thereby widening the wealth gap. In addition, the effect of property price rises on the household balance sheet has been heterogeneous across generations. Especially, financial liabilities held by households with heads aged 25-44, who have a relatively lower homeownership rate, have ballooned during the recent housing market boom.
From the perspective of economic mobility, wealth mobility is lower than income mobility. Accordingly, the wealth gap which has been widened due to the property price increases is likely to persist. Furthermore, the quality and composition of financial liabilities of households with heads aged 25-44 have deteriorated. The proportion of heavily indebted households in the group has increased more sharply. And the purpose of loans taken out has varied depending on their household wealth. To be specific, the share of loans for leasehold (jeonse) or security deposits has been increasing among households in their bottom 60% net worth segment, while the share of loans for residential housing purchases has been increasing overall among households in their top 40%.
It is noteworthy that households in Korea regard real estate as a primary means of wealth accumulation. In this regard, more policy attention should be paid to the distribution of wealth as well as housing stability. Also, thorough monitoring of developments and risk factors in the housing market is needed to prevent financial vulnerabilities from materializing.