Structural Changes, Housing Price Dynamics and Housing Affordability in Korea

The Korean housing sector offers an interesting case study. It has had a highly regulated market faced with a large demand pressure over an extended period of economic development, has solved the problem of absolute housing shortages within a reasonably short time period, and has maintained an explicit policy goal of achieving housing price stability. This paper documents the evolution of housing policy in Korea, identifying the structural changes that have taken place in the housing market and government intervention in it since the late 1980s. It also traces the trends in housing prices and affordability during the past two decades. An econometric analysis is then conducted to explore the determinants of long-run housing prices and how the structural change in mortgage lending around 2000 has impacted the housing price dynamics in Seoul and several other major cities. Finally, a set of policy implications is drawn from the analysis of housing prices and policy experiences.