I had lunch with a Korean coworker today. We talked about life in Korea, and somehow the conversation migrated towards talking about housing and commuting in Seoul. She lives with her family in northwest Seoul, works downtown, drops her child off at daycare in south central Seoul, while her husband commutes to work in southeast Seoul. Unfortunately, her daily commute is long and complicated. I asked her why she hasn’t move south to a more convenient location. She answered that she rents an apartment in Seoul close to where her parents live. Her parents take care of her son every morning before they drop him off at daycare. Also, housing near the Han River is very expensive, making it cost prohibitive for them to relocate to that area. It’s unfortunate that their housing options are limited. Until they rent or buy elsewhere or change jobs, they will continue to have a long work commute via subway or bus. Because parking is at a premium in Seoul, bus and subway are usually the best options for the typical Seoul commuter.
Korea’s housing sector functions somewhat differently than that of the U.S. Many Koreans rent apartments. Most renters pay a “key money” fee that grants them the right to live in a rental (exceptions include those who rent from other family members). “Key money” is a very steep deposit renters must pay landlords up front before moving into a rental. Renters can get their “key money” back after they move out of the property. However, they receive no additional return for their deposit. Consequently, Korean renters pay a lot of “key money” and have nothing to show for it once they get their “key money” back. Koreans can buy their homes, but because they have to pay the entire cost up front, most Koreans do not buy homes until they are older. They finance home purchases out of pocket, use funds provided by family members, or tap moderate lines of bank credit. Few Koreans assume American-style mortgages. Putting “5 per cent” down on a home is virtually impossible to do in Korea. Those who cannot afford to buy or rent a home typically live with their parents until they marry or accrue enough “key money” to move out on their own. Americans’ ability to buy a home with little money down gives them an opportunity to become independent at an earlier age and to start accruing equity early life. While Americans saving very little and frequently have burdensome personal debt, many increase their net worth through home ownership. In recent years, the U.S. housing market has boomed, and most U.S. home owners have benefited from substantial capital gains on their homes. In Korea however, many Koreans wait until later in life to buy, and they miss out on early opportunities to purchase a home and build home equity.