[In-Depth Review] First-Time Home Purchase Support and Its Socioeconomic Effects

Jin Mi-yoon, Head of the Policy Support Group at LH Land and Housing Institute

It is not easy for low- and middle-income households to own their own homes. It usually takes 7 to 8 years after becoming the head of a household to achieve this. In the early 2000s, people could buy their first home at the age of 37 to 38, but recently this has been delayed to 43 to 44. In foreign countries, people tend to own their homes at a much younger age than in Korea. The average age of first-time homebuyers among OECD member countries is 35. Austria and France are at 31, the UK at 33, the US at 34, Denmark at 35, and Australia and Canada at 36 when purchasing their first home. Generous loans covering up to 95% of the home price, along with various government supports, play an important role.

The U.S. federal government offers preferential interest rates, loan fees, income tax deductions on loan interest, and partial support for down payments to first-time buyers. State governments are also actively providing additional support through policy brands such as Welcome Home, Home Plus, and Smart Solution. Australia provides a $10,000 (approximately 9 million KRW) grant for purchasing new homes priced under $750,000 and exempts acquisition tax. Canada offers incentives of 5-10% of the home price for new homes priced under $675,000. The UK’s First Homes program offers 30-50% discounts on new homes priced under ?250,000 (and under ?420,000 in London). Various shared equity homes for first-time buyers are also supplied, allowing purchase of new homes by paying only 5% of the price.

Support for first-time homebuyers is largely countercyclical. After the global financial crisis, many countries significantly increased support to promote new supply, activate transactions, and stimulate the economy. However, recently the focus has shifted to easing affordability. As home prices have risen sharply, homeownership rates have declined, making it harder to buy a first home. Increasing loans to encourage purchases has its limits. Current home prices are quite high even by long-term trends. Considering future interest rate hikes, the reality is challenging.

Households without homes can climb the ladder to homeownership faster with such support, and by their 50s, they can fully enjoy asset-based welfare in homes free from mortgage worries. This also revitalizes the housing market. First-time purchases absorb new supply and account for over 50% of housing transactions, helping smooth market circulation. The number of first-time purchases is also an indicator of market health. A decline in purchase numbers means higher barriers to market entry.

Korea’s support for first-time homebuyers was first implemented in 2001 after the foreign exchange crisis to stimulate the construction industry, but it has been suspended and resumed four times depending on market conditions. This year, expanding special supply for first-time buyers to private apartments and easing the LTV to 80% for first-time buyers as part of the May 30 livelihood stabilization measures are quite encouraging. In the future, combining youth cost-price housing, first homes near subway stations, and loan support will create opportunities for young people and newlyweds to own homes. However, we actually know very little. There are no statistics on how many first-time buyers have purchased new homes or their share in existing home transactions. If we could more clearly identify the socioeconomic effects of first-time home purchases beyond the individual level, might we be able to make bolder investments? Just as youth represent the future of the population, first-time home purchases can be seen as a mirror reflecting the future of a healthy housing market.

Jin Mi-yoon, Head of Policy Support Group, LH Land and Housing Institute

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