contents go

KDI - Korea Development Institute

KDI - Korea Development Institute

SITEMAP

HOT ISSUE

KDI Economic Outlook 2023-1st Half The Impact of Rising Interest Rates on Housing Construction and Outlook May 02, 2023

DEFAULT IMG
KDI Economic Outlook 2023-1st Half The Impact of Rising Interest Rates on Housing Construction and Outlook

May 02, 2023

  • profile
    HWANG, Sejin
  • profile
    JUNG, Kyuchul
Summary
■ The rate hike has contributed to the reduction in housing prices and starts and is anticipated to result in a decline in future housing construction, ultimately weakening economic growth.

- The analysis found that the decline in housing starts, due to high interest rates, is projected to hinder economic growth by 0.3%p in 2023 and 0.4%p to 0.5%p in 2024.

■ Recent rate hikes are intentionally designed to control inflation by managing economic growth at a slower pace, with the decline in the housing economy being understood as part of that process.

- The current tight monetary policy stance aims to stabilize inflation despite the broader economic slowdown.

- With low-interest rates in 2020 and 2021, real transaction prices of apartments soared by 16.7% and 18.1%, respectively, and are now entering a correction period.

- With the recent timing of rate hikes, the housing market encountered credit crunches centered on real estate PFs, exacerbating the challenges faced by construction companies. However, the need for policy response is not urgent unless the risk of a financial system crisis escalates.

■ Nevertheless, if housing construction stays contracted for a significant period of time in the future due to the recent decline in housing prices, a shortage of housing supply may arise, necessitating ongoing efforts to enhance housing supply resilience to demand changes.

- Housing supply takes considerable time, and mismatches between supply and demand often occur. It is essential to create conditions that can support housing supply, such as through public residential sites preparation, when housing demand begins to recover.

- Simultaneously, due to rising construction costs, construction companies and homeowners' associations frequently engage in conflicts, causing delays in construction. Relevant systems must be overhauled for improvement to ensure construction projects are executed as planned.
This video provides English subtitles. Click on the video to watch more conveniently.
|   Related information   |
While interest rates are soaring
Slumped as the housing market turned around;
Did the rate hike directly affect you,
Will the slump continue next year... KDI diagnosed it!

Author: Hwang Se-jin, Fellow at KDI

#interest rate #real estate #housing economy #housing construction #economic growth rate
Join our Newsletter

World's Leading Think Tank, Korea Development Institute

Security code

We reject unauthorized collection of email addresses posted on our website by using email address collecting programs or other technical devices. To access the email address, please type in the characters exactly as they appear in the box below.

captcha
KDI Staff Information

Please enter the security code to prevent unauthorized information collection.

KDI Staff Information

Please check the contact information.

OK
KDI Staff Information

Please check the contact information.

OK