Bank of Korea: "Rising Housing Prices Lead to More Elderly Retirements"

The Faster House Prices Rise, the More Elderly Labor Supply Decreases

View of downtown apartment complexes from Namsan, Seoul [Image source=Yonhap News]

A study found that if housing prices rise by 10%, the working hours of the elderly decrease by 6.1%, and the probability of retirement increases by 1.3 percentage points. In particular, if housing prices rise more than expected, as they did last year, the retirement timing of the elderly tends to accelerate even further.

According to the report titled "The Impact of Changes in Housing Asset Values on Labor Supply and Retirement Decisions of the Elderly," released on the 9th by Jeong Jong-woo, Associate Research Fellow at the Micro-Institutional Research Office of the Bank of Korea, the increase in the price of owned housing significantly affects the reduction in labor supply among the elderly.

Jeong analyzed data from 3,664 individuals aged 55 to 70 over 12 years, from 2006, examining housing sales price indices and labor supply conditions. The results showed that when the asset value of owned housing rises by 10%, the economic activity participation rate and working hours of the elderly decreased by 1.8 percentage points and 6.1%, respectively. The probability of retirement increased by 1.3 percentage points. This means that as housing prices rise, the timing of retirement becomes earlier.

Male workers experienced a larger decrease in labor supply due to increased housing assets compared to female workers, and the impact of changes in housing asset values on labor supply and retirement decisions was found to increase as individuals approached the actual retirement age of 72 in Korea.

This effect was observed in both wage workers and self-employed individuals, with the reduction in labor supply being relatively higher among wage workers.

When the housing price increase was steeper than expected, the reduction in labor supply was even more pronounced.

According to Associate Research Fellow Jeong, if housing prices rise by 10 percentage points more than the expected level calculated based on the price trends of the past three years, the economic activity participation rate and working hours of the elderly decrease by 6.5 percentage points and 6.4%, respectively, while the probability of retirement increases by 4.8 percentage points.

In Korea, real estate accounts for about 70% of household assets, and the homeownership rate is higher among elderly households, so the rise in housing prices is expected to have a significant impact on the labor supply of the elderly.

Associate Research Fellow Jeong explained, "It is desirable to stabilize the real estate market and diversify household assets so that household assets do not overly depend on a specific asset class," adding, "Also, since the labor supply of the elderly can fluctuate considerably, efforts to improve the matching efficiency between labor demand and supply for the elderly are necessary."

This content was produced with the assistance of AI translation services.