The Global Financial Crisis and transition out of homeownership in Korea

Abstract

We investigate the impact of the 2008-2009 Global Financial Crisis (GFC) on housing tenure transitions in Korea, focusing on the determinants of pathways out of homeownership. Using Korean Labor and Income Panel Study (KLIPS) data covering the period 1999-2016, we analyze tenure transitions made by owner occupiers on the cusp of homeownership. The Korean case is interesting because an asset-based rental lease type, known as chonsei, and monthly rental leases with varying amounts of deposit, comprise the vast majority of private rental options. Western-style monthly rental leases account for a very small market share. Paying close attention to the availability of these private rental contract types, we investigate tenure transition by homeowners exposed to competing risks in the aftermath of the GFC. Estimates from the Cox single-hazard model suggest that, other things being equal, the hazard of homeowners’ transiting to a rental lease during the crisis years is 32% larger than during the non-crisis period. We also find that the effects of the crisis on transitions out of ownership depend on the types of private rental arrangements available to homeowners. Finally, about 50% of the ex-homeowners are still renters by the end of the 4th year, falling to 30% by the end of the 10th year after exiting from homeownership.