Koreans will save for an average 16.6 years to buy a family home, OECD report finds

Posted on : 2022-08-13 11:06 KST Modified on : 2022-08-13 11:06 KST
That’s the second longest period of saving among OECD members, behind only that of New Zealand
Courtesy ClipartKorea
Courtesy ClipartKorea

A new report suggests it would take the average South Korean household 16.6 years (as of 2020) to buy a house measuring 100 square meters (1,076 sqft), presuming that the household saves up all its disposable income for the purchase. That’s longer than all but one of the states belonging to the Organisation for Economic Co-operation and Development (OECD).

The OECD recommended that Korea and other countries where housing prices have soared during the COVID-19 pandemic toughen their taxes on higher property values.

This finding appears in a report titled “Housing Taxation in OECD Countries” published by the OECD in July. It appears to be the result of high housing prices combined with relatively low income levels. In 2000, Korea held the longest savings time in this category, with 18.8 years needed to purchase housing, but that period has decreased by around 2.2 years over the past two decades.

The OECD country where it would take the longest to save up for a house is New Zealand, where the period has lengthened from 10.3 years in 2000 to 18.7 years today.

Noting that housing prices have risen around the world during the COVID-19 pandemic, the report recommends raising housing taxes.

The report observed that many countries have been attempting to restore public finances by increasing tax revenues to increase economic assistance as they navigate out of the COVID-19 pandemic.

“Many governments are also under increasing pressure to address rising inequality and declining housing affordability, which is especially affecting low-income and young households. In addition, the growing international mobility of both capital and people may encourage governments to raise more revenues from less mobile tax bases, in particular real estate,” the report said.

The report reconfirmed the property tax principle of lowering transfer taxes and raising holding taxes. As of 2020, real estate holding tax accounted for 62% of revenue from all property tax assessed across OECD member states, while transaction taxes accounted for 27% of that revenue. But the situation in Korea was almost the opposite of that, with 60% of total property tax income coming from transaction taxes and 26% coming from holding taxes.

Last month, the South Korean government, under President Yoon Suk-yeol, unveiled a tax reform plan that would greatly lower the rate and requirements for the comprehensive real estate tax, pushing Korea even further away from international trends.

In addition, the report said that, in several countries, revenues from taxes on housing “have not kept up with increases in house prices,” which it attributed to the way that governments assess property prices.

In short, property taxes are being levied on assessed values that fail to reflect changes in actual housing prices, even as tax rates remain at the same level.

The report recommended “regularly updating property values” to improve the efficiency and equity of real estate holding taxes.

By Lee Ji-hye, staff reporter

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