"Elderly Households Should Be Relieved of Tax Burden to Facilitate Moving to Smaller Apartments" [Chatham House]

Housing Policy Directions in Response to Low Birthrate, Aging Population, and Increase in Single-Person Households
"Housing Prices Will Decline Long-Term... Decline Speed Varies by Region"
"Australia's Elderly 'Downsizing' Policy Should Be Emulated"
"Large-Scale Long-Term Rental Housing Needed to Support Youth Marriage and Childbirth"
"Time to Start Discussing Local Government Mergers No One Has Dared to Mention"

On the 10th at Asia Economy in Jung-gu, Seoul, participants are sharing their opinions on demographic changes and housing policy changes at the 'Chatham House Roundtable.' From the left, counterclockwise, are Doo Sung-gyu, CEO of Mokmin Economic Policy Research Institute; Lee Yong-man, professor at Hansung University; Hwang Jun-ho, head of the Construction and Real Estate Department at Asia Economy; Song In-ho, director of the KDI Economic Information Center; and Yoo Hye-jung, Ph.D. at the Korean Peninsula Future Population Research Institute. Photo by Yoon Dong-joo doso7@

Since 2020, South Korea has entered the 'dead-cross' tunnel of population, where the number of deaths exceeds the number of births, leading to a natural population decline. Typical characteristics of a population-declining country include low birth rates, aging population, and an increase in single-person households. How will the housing market change in response to these phenomena?

“By 2040, the number of households will decrease, entering a long-term housing price decline phase,” “By 2040, the elderly households will exceed 10 million,” “By 2050, 13% of Korean houses will be vacant,” “By 2050, the proportion of single-person households in Korea will reach 40%”... Although it is time to prepare housing policies to address these bleak forecasts, the government has not significantly deviated from the past framework of ‘supply’ during high-growth periods and ‘rental’ for low-income groups. Recently, some policies for newlyweds, youth, and the elderly have been introduced, but much remains to be done.

To predict the housing market changes due to demographic shifts and propose policy alternatives, Asia Economy held a 'Chatham House Roundtable.' Participants included Professor Lee Yong-man from Hansung University’s College of Future Convergence Social Sciences, Dr. Yoo Hye-jung from the Korean Peninsula Future Population Research Institute, Director Song In-ho of the KDI (Korea Development Institute) Economic Information Center, and CEO Doo Sung-gyu of the Mokmin Economic Policy Research Institute.

They expressed opinions such as "Housing prices will decline in the long term, but the speed of decline will vary by region," "We should facilitate ‘downsizing’ for the elderly to reduce their housing size easily, like in Australia," "We need to supply larger long-term rental housing for youth to encourage marriage and childbirth," and "It is time to start discussions on local government mergers and consolidations that no one dares to mention." The roundtable followed the Chatham House Rule, disclosing the list of participants but keeping individual remarks anonymous.

▶ Moderator = Hwang Jun-ho, Head of Construction and Real Estate Department

Q: Low birth rates and aging are intensifying, and single-person households are increasing. How should housing policies change?

Professor Lee Yong-man, Hansung University. Photo by Dongju Yoon doso7@

A: Real estate policy is at a turning point. Until now, the focus was on how to stabilize housing prices and how quickly to supply housing. But now, it’s not just low birth rates but ultra-low birth rates, not just aging but ultra-aging. These effects will appear in 10 to 15 years. By 2040, the number of households will start to decrease, and by 2050, 75% of all households will be one- or two-person households. A significant portion of these one- or two-person households will be elderly. We need to consider whether the current housing types are suitable for elderly one- or two-person households.

For now, it is important that housing does not exacerbate low birth rates. Housing prices are one of the factors that further reduce birth rates. In this regard, the overall framework of housing policy must be completely changed. There is a so-called ‘marriage penalty’ where married couples face disadvantages in subscription or loans compared to single-person households. The government has improved some systems, but remaining barriers must be overhauled.

B: I agree. In the past, during the severe housing shortage of the 1980s and 1990s, supply-oriented policies were deeply embedded in all real estate systems. The focus was on supply volume. Now, housing policy should shift from quantity to type, changing according to the demand side perspective.

C: Housing policy is a key to solving demographic problems. But when fitting that key, it must be connected with various factors. Earlier this year, we conducted a survey targeting youth. When asked why they do not marry or have children, they said housing burdens are very high. However, when asked if they would marry or have children if the government solved housing problems, many did not answer affirmatively. We need to find what other factors should be linked to reduce the negative impact of housing issues.

D: Since last year, the natural population has been decreasing, but single-person households continue to increase, especially among youth in metropolitan areas. In 2022, the housing supply rate for youth single-person households nationwide was about 102%. However, in Seoul, it was only 93.7%, decreasing from 96% in 2019, 94.9% in 2020, and 94.2% in 2021. This is due to youth moving to Seoul for employment and education. Youth mostly live in officetels or one-room apartments, paying about 600,000 KRW in monthly rent. While the population declines, single-person households in metropolitan areas increase, and the quality of housing for youth single-person households has worsened. The government should focus on the rental housing market.

Q: How do you think low birth rates will affect housing prices in the future?

Dr. Yoo Hye-jung, Korea Future Population Research Institute. Photo by Dongju Yoon doso7@

A: If housing prices are the main culprit of low birth rates, one might think that prices falling would increase birth rates. But is housing price really the root cause of low birth rates? We need to question this. The causes of low birth rates are separate, and housing prices can either amplify or reduce this problem. Studies in Canada and the U.S. show that when housing prices rise, birth rates also increase due to the asset effect?homeowners tend to have more children. In the U.S., large cities have low birth rates. Some blame housing prices, but an urban economist pointed out that cause and effect are confused. Cities have many young and high-income people who tend to avoid childbirth. Housing prices are high, so it is assumed that high prices cause low birth rates, but whether housing prices cause low birth rates is debatable. Nevertheless, as the number of households decreases due to low birth rates, housing prices will inevitably fall. However, there will be regional differences. Areas like Seoul, where people concentrate, will not see price drops, while less populated provinces will experience larger declines.

D: I agree. From a mid- to long-term perspective, the decrease in the number of households fundamentally lowers housing prices. However, the speed can be moderated by national income and regional factors. Last month, Seoul apartments rose by 0.8%, but nationwide apartment prices fell. This alone shows the trend.

C: Those who say ‘real estate negatively affects birth rates’ cite the sharp decline in birth rates since 2015, when real estate prices skyrocketed. Although it is difficult to directly link them, if we assume that the long-term decrease in households lowers housing prices, one might expect birth rates to rebound when prices fall. But by 2040, 15 years from now, the number of women of childbearing age will have significantly decreased. The momentum for birth rate recovery will be lost, so prevention is necessary before then. Although birth rates might rise slightly, academia calls this the ‘low birth rate trap.’ We cannot just wait indefinitely for housing prices to fall.

Q: Youth are both the cause of increasing single-person households and a clue to solving low birth rate problems. What changes are needed in their housing policies?

Song In-ho, Director of the KDI Economic Information Center. Photo by Yoon Dong-joo doso7@

D: Since youth are not marrying, single-person youth households are increasing, mostly concentrated in metropolitan areas. For single-person households, monthly rent and jeonse (long-term deposit lease) prices have a greater impact than housing purchase prices. In the market, non-apartment housing is more important than apartments. The average living area for single-person households is about 40㎡, but for youth single-person households, it is 34㎡, roughly 10 pyeong. Their actual housing demand is for small homes.

It is said that youth need long-term rental housing, but the long-term rental housing built by Korea Land and Housing Corporation (LH) currently offers almost no opportunity for youth to move in. To enter long-term rental housing in Seoul, income and asset criteria must be met. Existing LH tenants have priority. When LH builds new rental housing, ‘rental shopping’ occurs, and people without assets and older individuals occupy the units. The situation is the same for new rental housing near subway stations where youth should live. Especially, these people are not increasing their income and tend to stay in rental housing. Youth who really need long-term rental housing find it harder to move in. Building more long-term rental housing is necessary, but proper management is even more important.

There are 6.6 million workers in Korea who pay no taxes. Those earning less than 25 million KRW annually pay no taxes at all. If most of these 6.6 million are youth, many are single-person households living in monthly rent. The monthly rent tax credit rate is 15%, but it is meaningless for youth who pay no taxes. Although these are youth household support policies, some do not reflect reality properly. It is more realistic for the government to pay landlords of low-income youth renting homes, allowing tenants to live rent-free.

C: In a survey on youth about marriage and childbirth, quite a few said they did not know whether they wanted to remain single for life or marry if conditions allowed. I thought this uncertainty was meaningful, so we included ‘don’t know’ as an option for the first time this year, and 20% chose it. When asked if government or corporate benefits might change their minds, 40% said ‘possibly.’ When asked what support they wanted, many cited housing problem solutions and financial support.

In that sense, housing support can provide opportunities to overcome difficulties. To marry and live with children, at least two rooms are needed. Currently, the government provides youth housing about the size of a studio, which offers no future prospects and may cause youth to give up. The government’s limited budget and policy of not providing housing sized for three-person households to single-person households are understandable. However, youth housing should at least maintain minimum quality of life and allow future planning. Even newlywed special supply housing is barely large enough for two people. Having children means moving and changing the living environment, which leads to avoiding childbirth. Current youth housing support policies have little effect on motivating financially struggling youth. I believe long-term rental housing is what can help youth. Larger-sized housing is needed. Long-term rental housing that allows raising children without problems and planning life long-term will encourage youth to marry and have children.

Q: As we enter an ultra-aged society, housing policies for the elderly also need to change.

Dusungkyu, CEO of Mokmin Economic Policy Research Institute. Photo by Dongju Yoon doso7@

A: Nowadays, elderly parents rarely live with their children. There are many elderly one- or two-person households. Society should care for them, but perfect care is impossible. It is an era where the elderly must take responsibility for their own old age. The most necessary thing for the elderly is to facilitate apartment ‘downsizing.’ Elderly one- or two-person households do not need to live in 40-pyeong apartments. They should move to smaller units and use the difference to cover living expenses. However, considering acquisition tax and capital gains tax, downsizing reduces assets, so they hesitate.

For example, moving within the same apartment complex from a large unit worth 2 billion KRW to a smaller one worth 1.5 billion KRW incurs taxes that make moving a loss. Elderly households need to liquidate housing assets for income but cannot afford to lose money. From a societal perspective, it is win-win to have younger generations live in larger units while elderly one- or two-person households move to smaller homes but maintain steady living expenses.

Australia has created a ‘downsizing’ program for the elderly. When elderly households move from larger to smaller residences, the difference can be used as a pension, and no tax is imposed on the difference. Korea should similarly facilitate downsizing for elderly households and establish systems allowing meals within apartments.

C: Reform of the housing pension system is also needed. In May this year, the residency requirement was relaxed to allow elderly people to join the housing pension when moving into senior welfare housing like silver towns, but this is insufficient. Elderly people often need to move temporarily for health care or to care for grandchildren near their children. The current housing pension system does not adequately reflect these situations and needs improvement.

In Singapore, if children live within 2 km of their parents’ or grandparents’ homes, they are given priority in housing allocation. If introduced in Korea, popular areas would be overcrowded, so countermeasures would be necessary. However, policies that strengthen family community-based self-reliance to solve ultra-aging problems are important.

Q: As aging progresses, vacant houses are rapidly increasing in rural areas. How should the vacant house problem in rural areas be addressed?

C: Everyone probably wonders, ‘Do we have to keep all cities alive?’ But raising this question makes one a traitor, so public discussion is difficult. When one vacant house appears in a neighborhood, it quickly spreads. We need to discard what should be discarded and preserve what should be preserved, with rational criteria. Discussions on local government mergers and consolidations should have started already but are not prepared. Top-down approaches will face strong resistance. Discussions must start from the bottom up in local areas.

B: There are over one million vacant houses. They became vacant after parents passed away, and even if children inherited them, they are neglected due to lack of economic value. It is more accurate to call them abandoned houses rather than vacant houses. Ultimately, it is impossible to maintain all cities. Like smart cities, several cities should be combined to enable shared living.

Q: Will there be changes in urban redevelopment projects due to social changes such as low birth rates, aging, and increasing single-person households?

A: Recently, Seoul mandated daycare centers in reconstruction complexes, but since elderly facilities are somewhat stigmatized, this decision was made. Since these facilities will be built anyway, the associations will ensure demand, so elderly facilities in cities may become more upscale. This process will improve elderly living environments, which is desirable.

C: The biggest opportunity for the public in redevelopment projects is to provide incentives like floor area ratio bonuses to enhance public interest. Despite population decline, children and the elderly are often excluded and prohibited from many places. Based on the population crisis, it would be good if redevelopment projects systematize acceptance of facilities for children and elderly who are neglected when left to the market.