The so-called "K-shaped polarization" is not unique to South Korea. Even in France, known as a welfare state, the top 1% of households hold 15% of all household assets, while the bottom 50% hold just 7%. According to France's statistics agency, the median wealth of households headed by someone under 30 was only 104,400 euros (about 157 million won), compared with 464,800 euros (about 699 million won) for those aged 50 to 59. In the United States, the slope of polarization also steepened after the onset of COVID-19. Total assets held by the top 0.1% of Americans rose by about $14.5 trillion between the end of 2019, just before the pandemic spread, and the end of June this year.
The problem is that polarization in Korea is advancing far faster than in the United States and other major economies, and that the wealth is concentrated overwhelmingly in real estate rather than financial assets.
Net worth per household in Korea's top 0.1% rose from about 7.9 billion won in 2019 to 15.75 billion won last year, a 98% increase over six years. Over the same period, asset growth for households in the top 0.1% to 1% and the top 1% to 10% brackets came to about 39% each. The average net worth of all Korean households rose only about 34%, from 353 million won to 471 million won, widening the gap further. The growth rate for the very top bracket was roughly three times the average for all households.
Real estate drove the wealth accumulation of Korea's ultra-rich. Average real estate holdings per household in the top 0.1% nearly tripled, from about 5.6 billion won in 2019 to 15.07 billion won last year. The six-year increase of about 9.46 billion won exceeded the roughly 7.81 billion won rise in net worth over the same period. Holdings of stocks, bonds and funds, by contrast, edged up from 1.4 billion won in 2019 to about 1.5 billion won last year. That means the top bracket's gains were concentrated in property rather than financial assets.
The top 0.1%'s share of total household assets also grew, led by real estate. Their share of all real estate in Korea rose to 3.8% last year from 1.9% in 2019. Their share of stocks, bonds and funds shrank to 7.5% from 12.7% over the same period. Their share of net worth rose to 3.4% from 2.3%.
Analysts say a mix of market structure and policy conditions pushed Korea's ultra-rich toward property. Lending restrictions made home purchases harder while creating a relatively favorable environment for cash-rich buyers who can mobilize funds without borrowing. With population and resources concentrated in Seoul, there are few assets that can substitute for real estate, and volatility in the domestic stock market is also cited as a factor driving the tilt toward property.
"In Korea, real estate, which accounts for about 75% of assets, is the key driver of worsening wealth inequality," said Lee Seung-hee, a research fellow at the Korea Development Institute (KDI). "Whether a household owns a home in the greater Seoul area, rather than simply whether it owns a home at all, is having a decisive effect on the widening wealth gap."
Monetary and inflation responses after COVID-19 are also cited as a backdrop to the widening gap. Experts say the combination of liquidity injections and rising asset prices concentrated wealth among those who already owned property or stocks. "In the United States, people invested more in stocks, which trend upward, than in real estate, while in Korea, people invest in real estate, which trends upward, rather than in stocks, which move sideways," said Hur Jung, a professor of economics at Sogang University. "The gap between those who already have ample funds and those who do not could widen further."
Experts do not expect the wealth gap to narrow anytime soon. "When resources concentrate in the most profitable regions and industries, and property regulations are layered on top, the middle class has fewer chances to build assets and the wealth advantage of the rich can harden," said Yang Joon-mo, a professor of economics at Yonsei University. "Housing supply should be expanded to widen the middle class's chances of buying a home, while investment options in financial markets should also be broadened."
Some also point to the concentration of wealth in property as a reason for weak consumption in the Korean economy. When the value of financial assets rises, overall spending tends to increase in a virtuous cycle; when property prices rise, taxes and other costs rise along with them, dampening the stimulus to the consumer market.