"Rising House Prices Under Current Government Due to Low Interest Rates, Not Supply Shortage"

A study has found that the biggest factor influencing the rise in housing prices under the current administration is not a shortage of supply but ‘interest rates.’

The Korea Research Institute for Human Settlements announced this on the 24th through its Land Issue Report titled “Analysis of Factors Affecting Housing Price Fluctuations and Their Contributions,” which reviewed and analyzed factors influencing housing price changes from May 2017, when the Moon Jae-in administration began, to May of this year.

According to the report, an analysis of the Korea Real Estate Board index during this period showed that the primary contributor to the rise in housing prices was the ‘real CD interest rate,’ accounting for 46.7%. This was followed by ‘previous month’s housing price’ (26.4%), ‘real manufacturing production index’ (24.1%), ‘total housing completions’ (2.1%), and ‘number of households’ (0.7%) in that order.

In particular, from the second half of 2019 through the first half of this year, the housing market showed signs of overheating, leading to increased volatility. It is analyzed that a structural shift occurred in July 2019, when the monetary policy began to maintain a loosening stance. July 2019 was when the Bank of Korea abruptly cut the base interest rate for the first time in 3 years and 1 month.

Comparing before and after July 2019 based on the Korea Real Estate Board index, the impact of interest rates on housing prices showed a significant difference. The contribution of the real CD interest rate to housing price increases was only 14.2% before the structural shift (May 2017?July 2019), but rose to 34.3% after the shift (July 2019?May 2021).

During the same period, the contribution of the previous month’s housing price also increased from 5.0% to 30.2%, but its absolute contribution was lower than that of interest rates. The real manufacturing production index, reflecting the real economy, showed the highest contribution of 63.4% before the structural shift but decreased to 25.6% afterward.

On the other hand, demand-side factors such as supply shortage (4.7?9.9%) and the increase in single-person households (0.7?5.0%) were analyzed to have relatively lower contributions to housing price increases compared to interest rate factors.

Lee Tae-ri, a research fellow at the Korea Research Institute for Human Settlements who authored the report, stated, “It was confirmed that changes in interest rates have a significant impact on housing prices,” and emphasized, “There is a need to include housing transaction price information in the Consumer Price Index.” He explained that a Consumer Price Index including owner-occupied housing costs should be developed as a supplementary indicator and applied after sufficient discussion.

This content was produced with the assistance of AI translation services.