Structural Changes, Housing Price Dynamics and Housing Affordability in Korea

Untitled

“…Although it is very straightforward to think about house price to move upward owing to supply gap or shortage, the inelastic supply remained. Similar to OECD (2005b), Kim and Cho (2010) also observed similar reason of rising house price prior to 1988 in South Korea. The accumulated pressure from demand for house on the housing market has been cited by Kim and Cho (2010) as the primary driver.…”

“…Similar to OECD (2005b), Kim and Cho (2010) also observed similar reason of rising house price prior to 1988 in South Korea. The accumulated pressure from demand for house on the housing market has been cited by Kim and Cho (2010) as the primary driver. Unlike in the case of New Zealand, in which no clear proactive measure or response is taken to overcome the issue, Korean government responded well and capable to improve the housing conditions by introducing a radical policy of increasing the supply of houses by another two million in 1992.…”

“…House price issue reappeared in the 2000s but this time around, the source of problem is due to insufficient house supply. Although Kim and Cho (2010) did not directly link this issue with the activities of wealthy Korean in buying more than one house, we believe this could be another strong reason as according to Kim and Cho (2010) the ratio between dwellings and households does not show housing shortage as really an issue at that particular time. Girouard et al (2006) also revealed the same consideration with a slight different objective namely buy-to-let.…”

“…Finicelli (2007) concluded that the dramatic rise in interest rates could partly account for the housing market weakness in the first half of the 1980s. Similarly in the case of South Korea, following the privatisation of government-owned Korea Housing Bank in 1997, commercial banks are now allowed to offer mortgage loans (Kim & Cho, 2010). Combined with low demand due to an anticipation of employment and income uncertainty and thus, housing price collapsed in 1998, low interest rate was believed as one of the solutions to lure more consumers to buy house.…”

“…Surprisingly, Girouard, Kennedy, van de Noord and André (2006) found that from 2001 onwards, the deceleration of disposable income in the US which was partly due to series of recessions, has been accompanied by a sharp acceleration of real house prices. Finicelli (2007) Kim and Cho (2010) revealed that rather than income per se, future income expectation is more powerful in determining house price behaviour. In the wake of the 1997 economic crisis, when the scenario is very gloomy and prospect of economic recovery is difficult, people started to be very concern about their future employment and income.…”