Household Debt and Housing: Source of Income Inequality in South Korea

This study uncovers that the rising incidence of household debt, particularly being used for acquiring non-financial assets, correlates with a notable increase in income, predominantly benefitting high-income households. This trend is especially relevant in South Korea, where a significant portion of household debt is driven by the acquisition of non-financial assets such as houses. However, in the context of existing loan regulations, which prioritise macroprudential stability, the capacity to accrue substantial debt for non-financial assets is largely limited to high-income households. Consequently, this pattern aggravates income inequality as the analysis reveals that higher household debt balances are linked to positive income effects which are mostly available only to high-income households.