Following the decline during the global financial crisis, the housing market in Korea is now trending up. It was during the lengthy decline of the housing economy when the risks faced by the Korean economy, such as aging demographics, drew public attention. In response, the government developed policies intended to enhance the housing demand to bolster the housing construction business. Previous stabilization regulations—housing subscription, construction and finance—applied before the crisis, were mitigated and the real estate taxation was amended, fueling the boom of housing construction. The policy focus were shifted towards housing price stabilization from 2016, and the new administration announced a series of price stabilization policies from early on. This study attempts to analyze the impact of the policy shift on the housing construction sector and the real economy, focusing on residential building construction, a key linkage between the housing economy and real economy.
Chapter 1 looks into the relationship between housing construction, prices and the economy. From the mid-2000s, capital and non-capital regions began to grow apart in terms of the housing economy, and after the global financial crisis, the correlation between housing construction and the economic growth rate decreased. The housing construction and relative price of housing construction were generally in a positive relationship, but it turned negative from 2013, meaning that supply, not demand, became a driver of the steep rise in housing construction. Housing starts was a powerful tool to account for the GNI in the past while the index on bank’s lending practices is more useful during the current booming period. This is because behind the recent thriving housing construction sector is the financial policy affecting banks’ lending practices.
Chapter 2 examines the impact of the supply of public residential sites on housing construction. It was found that the increased supply caused a rapid hike in housing construction. The housing economy retreated after the global financial crisis, and the selling of residential sites slackened. In the non-capital region, the housing economy was restored and residential site sales started to pick up. Afterwards, the capital region exhibited huge increases in public site sales thanks to the booming housing economy. Given that the housing construction on public sites has been in sync with that on private sites, the volatility of housing construction can be heightened by residential site development projects. As aforementioned, housing prices and the supply of public residential sites is able to explain housing construction while income and interest rates are found to be insignificant. The recent trends show that house prices are behind public site supply when it comes to explanatory ability.
Chapter 3 studies the impact of loan and monetary policies on GDP and housing construction. When loan policies are eased, household borrowers tend to increase loans in the early stage, production inputs are concentrated on housing investment while facilities investment shrinks. Consequently, the GDP will likely stand at a low level for a considerable time. It is found that accommodative loan policies in tandem with reduced interest rates could buffer some of economic contraction.