High rent, heating costs cause spike in expenses

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High rent, heating costs cause spike in expenses

Soaring rent and heating costs caused Korea’s housing-related outlays to reach record-high levels last year, a report by a local think tank showed yesterday.

The Hyundai Research Institute (HRI) said the country’s Schwabe index hit 10.15 percent last year, the highest number reached since it started checking housing costs.

It said the figure for 2011 follows the steady rise of the index from 2007 onwards.

The index refers to the proportion of household income spent on housing that includes rent, heating and water use. According to the Schwabe’s rule, total percentage of money spent on housing tends to decline with the rise in actual income. A rise in the index can be interpreted as a drop in disposable income or overall spike in rent and utilities costs.

HRI said that in 2011, the country’s rent price index reached 4.0 percent from just 1.9 percent in the previous year.

The increase tallied by Statistics Korea was mainly attributed to higher monthly rent and so-called jeonse money, which are long-term deposits on leased homes.

Housing expenses were, in addition, affected by the rise in heating costs triggered by the surge in global energy prices. The Bank of Korea said that energy import prices skyrocketed 27.7 percent last year.

“The increase in housing costs is a source of concern because people cannot easily cut outlays in this sector,” an HRI researcher said.

He pointed out that if sluggish economic conditions continue, there will be a further reduction in disposable income that can cause housing-related spending to rise vis-a-vis earnings.

To alleviate this problem, there is a pressing need to create more jobs that could boost income. The private think tank also said more houses should be built to ease supply, the think tank said.

Yonhap

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