South Korean consumption won’t recover regardless of stimuli actions including relief paychecks if home value depreciates, central bank study found.

The Economic Research Institute under Bank of Korea in its report published on Monday said households up spending by 0.15 percentage point when home prices rise by 1 percentage point. In contrast, they cut consumption by 0.55 percentage point when home prices fall 1 percentage point.

The study result confirms the theory that household consumptions react more sensitively to a decline in housing asset values than an increase, said Lee Seung-yoon, BOK senior researcher.

The consumption pattern hinged on ownership. Homeowners’ consumption rose 0.2 percentage point when house prices gained but those that do not own houses cut spending by 0.23 percentage point.

This is because non-homeowners tend to increase savings by cutting expenditures to afford a house, said Lee.

Households also responded differently to falling home prices. When home prices dropped 1 percentage point, homeowners cut back by 0.64 percentage point but non-homeowners increased spending slightly by 0.04 percentage point.

“(Non-homeowners) respond greater to rising house prices than to falling house prices,” said the report. The relationship between house prices and private consumption has been one of the hot topics among Korean economists as they warn home devaluation from multiple regulations could slow economic recovery.

The report is based on a study on the Korean Labor and Income Panel Survey data from 2011 to 2017.

The chill in housing market due to multiple tax and loan regulations worsened due to the virus outbreak. Home trade in April slipped 32 percent from the previous month.

By Song Min-geun and Cho Jeehyun

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