Note: This is the first in a series of posts that will focus on the challenges that Korea will face as a result of its aging population.

Welcome to the First World, Korea
This snippet at Yonhap points out one of the growing pains that Korea will inevitably face. There is no getting around it. Korea’s higher per capital GDP and improved nutrition (not to mention newly-imposed no smoking laws, will increase live expectancy).

Housing is in Long-Term Decline
This Korea Times article cites SERI (Samsung Economics Research Institute) which points out the depth of the problem. A 50% drop in population means that there will be a smaller number of taxpayers. That has two obvious effects. First, the social welfare system can come under tremendous pressure as the average age of the population rises, and few people means that fewer people can make contributions to the national pension system. Second, the real estate market faces long-term decline. There is no way around that: more empty apartments, and no one to live in them. http://koreatimes.co.kr/www/news/biz/2012/02/335_104171.html

At least the Korean government has begun to see the writing on the wall. Korea has large construction sites call new cities (싲도시), many unoccupied, many unfinished. Finally, Korea has pulled the plug on the concept. Banks have been struggling with these projects, as they have lent to the engineering and construction companies (건설). The Korean government has bought empty apartments in order to help the companies and the banks that lent to them. Has this fixed the fundamental problem? Nope. In fact, real estate prices in Seoul and Korea has fallen, which has depressed consumer confidence. Whew, does this sound like one big circle? That’s because it is.

Policy Implications
Visitors and foreigners in Korea see the symbols of real estate agencies (부동산) everywhere. There are multiple cable tv channels whose sole topic is the real estate market. Koreans’ net worth is heavily invested in real estate, and not in equities. As usual, the retail investor is usually exactly wrong. Bingo.
The next headline, guaranteed, will be “Banks and E&C companies struggle due to ghost towns.” The aging and shrinking population? They will make the problem worse.

Korea has been consumed with getting out of poverty. However, as its economy has advanced, social planning will be required. How Korea deals with an increasingly aging policy cannot be underestimated. You can easily see the U.S., Japan, and Europe have not found complete solutions. Korea needs to avoid their fate, because it doesn’t have the natural resources that the U.S. and Europe have. Candidly, no economy wants to be mimic Japan. Korea must avoid the same fate.