As South Korea grapples with a decreasing birthrate that began to accelerate around 2020, concerns over the impact of these demographic shifts on the asset and real estate market have grown significantly. While a pessimistic theory suggesting a slump in housing demand and a sharp drop in prices emerged post the global financial crisis of 2010, the actual experience of the past two decades in the domestic housing market paints a different picture.
Even though the overall population began to shrink in 2020, house prices rose sharply until the sudden hike in the base interest rate triggered by the U.S. This seems to contradict the widely held belief that a decrease in population would lead to a slump in housing demand. However, an overview of domestic research over the past 20 years reveals that while a decreasing population might lower housing demand, an increase in the number of households can conversely increase it.
A report by Statistics Korea projects that despite an overall decrease in the population, the number of households in Korea will continue to increase, peaking at around 23.87 million in 2039. Following this peak, a gradual decline is predicted, with the number of households expected to shrink to around 22.85 million by 2050.
This decline in households is coupled with a predicted decrease in the size of households. While in 2020 single-person households made up the largest proportion (31.2%), households with two or more people, including couples with children and couples without children, significantly outnumbered single-person households. However, by 2050, single-person households are predicted to make up 39.6% of all households, significantly outpacing other types of households.
While the shift towards smaller household sizes and an aging population are prominent features of the changing demographic landscape, there is a critical question to consider: will single-person households, poised to become the majority, be potential buyers for standard-sized (around 84㎡) apartments that currently dominate the real estate market?
Statistics from 2021 suggest that the financial power of single-person households is relatively low, with their average annual income being only 42.0% of the average income for all households. Moreover, their assets amounted to only 38.5% of the average assets held by all households. When considering these figures, the feasibility of single-person households buying apartments in the current price range seems unlikely.
Against this backdrop, there is a call for a fundamental reorientation of the housing supply policy, taking into account the major demographic shifts that are underway. As the aging population and decrease in overall population intensify, population concentration in major cities becomes more pronounced, as seen in many international cases.
In line with this, South Korea needs to reconsider its housing supply policy, focusing more on high-density urban development or “compact city” concepts. This would allow for the maximization of the use of existing infrastructure like subway systems and other major facilities. The current trend of developing new satellite cities to create a fresh housing supply doesn’t align with the current demographic and societal trends.
An illustration of this issue can be seen in Busan. Even though new towns are being developed in areas like Gangseo-gu’s Myeongji International New City, these areas often fail to retain younger residents long-term. Once their children grow or considerations of transportation convenience come into play, many relocate back to the city center.
This implies that budget allocations for expanding transportation networks to new towns could be wasteful. Instead, it’s necessary to look at revitalizing or building new infrastructure in the older downtown areas. Such an approach could potentially respond more effectively to the changing dynamics of urban life, given the shifting demographics of South Korea. This shift in housing policy could also help to mitigate some of the negative impacts associated with population aging and decline, such as underutilized or unused properties.
South Korea stands at a critical juncture in its housing policy. While the country is witnessing profound demographic shifts, its housing market, particularly in cities, remains hot. The challenge lies in adjusting the housing supply to meet the demands of a changing society. It’s time for policymakers to consider a shift towards high-density urban development, revitalizing old downtown areas to meet the needs of the changing demographics while optimizing the use of existing resources.
