The Korean Housing Market: Its Characteristics and Policy Responses

Abstract

The Korean housing market has gained strength centering around the Seoul metropolitan area (SMA) since 2014, when it started to recover. Against the backdrop of low interest rates, the easing of real estate regulations has pushed up expectations of higher housing prices, which has led to greater demand for housing as an investment. Expectations of housing price rises, coupled with greater incentives for financial institutions to provide home mortgage loans, have caused household debt to grow rapidly. In order to stabilize the housing market in the SMA and contain the rapid household debt buildup, the Korean government has instituted comprehensive and tailored policy responses since the second half of 2017. The government’s sweeping responses cover many different areas, including macroprudential, housing and tax policies. The ranges and intensities of the policies differ by region, by household status (whether it owns houses or has taken out mortgage loans) and by the type of demand (speculative or residential) so as to increase their effectiveness and minimize any negative side effects. Thanks to the government’s policy responses, the rapid buildup of household debt has slowed recently, and the housing market in the SMA is gradually stabilizing.