Government housing policies and housing market instability in Korea

Abstract

This study examines the impact of housing policies and macroeconomic variables on housing price instability during the Roh, Mu Hyun Administration (2003–2008) in Korea. Although researchers have documented the role of macroeconomic variables on changes in housing prices, few have addressed the relationship between governmental housing stabilization policies and housing price fluctuations. Using a statistical method, this research focuses on whether policy initiatives taken by the Roh Administration to stabilize housing prices resulted in the expected outcome of a stabilized housing market. Controlling for macroeconomic variables, our empirical analysis reveals that the housing price stability policies of the Roh Administration had no observable impact on the stabilization of the Korean housing market. Conventional macroeconomic variables—the money supply, corporate bond returns, and the number of permits for building construction and actual orders for building construction—have a statistically significant association with housing price instability in Korea. This research discusses policy implications resulting from the ineffectiveness of housing stability initiatives in the Roh Administration.