The International Monetary Fund has identified South Korea's shortage of housing supply as a factor holding back investment and economic growth. The IMF said the growing burden of housing costs could also weigh on medium- and long-term growth.
Growth Blocked by Housing Shortage: "Similar to the U.K."
According to the IMF's 2026 G20 Report on Strong, Sustainable, Balanced and Inclusive Growth, released on the 25th, housing supply in South Korea is not keeping pace with demand, worsening the burden of housing costs.
The IMF said home prices and rents are rising because not enough housing is being built in the areas where people want to live, and that this cost burden can also impede the efficient movement of workers.
When home prices or monthly rents become too expensive in areas with more jobs and higher productivity, workers living in provincial or outlying areas may give up on relocating even when they find better jobs, the IMF said. That prevents workers and jobs from being matched efficiently, lowering labor productivity and weighing on economic growth over the medium and long term. The IMF cited the United Kingdom as an example of this and said Seoul is in a similar situation.
Low productivity in the construction industry was also flagged as a problem. The IMF said overly strict land-use and zoning rules make it harder to build new housing and other buildings or to make efficient use of existing sites, reducing the amount of housing and buildings that can be supplied for the same cost and labor.
Such productivity losses may not stop at construction but spread to other industries, weighing on growth across the economy, the IMF said. It added that land-use and zoning rules also serve a legitimate purpose in guiding urban development appropriately, making it necessary to strike a balance between excessive regulation and the efficient allocation of resources.
Population Aging and Labor Market Rules Also Constrain Growth
The IMF pointed to demographic change and labor market regulation as further structural constraints on South Korea's growth. In a country facing heavy demographic pressure, the IMF assessed that policy responses to support healthy aging and greater labor market participation by older adults remain insufficient. It grouped South Korea with countries such as Italy where excessive labor market policies and regulations constrain growth.
The IMF accordingly called for reform of the tax system, revenue administration and the pension system. It recommended strengthening training and retraining programs for workers, narrowing gender gaps in the labor market and easing product market regulation. Such structural reforms would secure fiscal space and reduce distortions in the labor market, easing the growth burden from population aging, the IMF said.
