The Bank of Korea: "Expectations for GTX and Reconstruction Contributed to Last Year's Sharp Rise in Housing Prices"

View of Seoul cityscape from Lotte World Tower Observatory Seoul Sky [Image source=Yonhap News]

The Bank of Korea announced on the 6th that, in addition to changes in real estate policies and financing conditions, local specific factors such as the spread of reconstruction expectations and the realization of the metropolitan area express railroad (GTX) project had a significant impact on the unusually sharp rise in housing prices last year.

In its BOK Issue Note report titled "Analysis of Housing Price Spillover Effects," the Bank of Korea explained, "The significant increase in housing prices last year was due not only to macro factors but also to local factors and the spillover of local factors."

Macro factors refer to common factors such as income growth, real estate policies, and financing conditions, while local factors refer to regional factors such as the GTX project and reconstruction expectations. The Bank of Korea estimated that the contributions of macro and local factors were similar during the housing price increase period last year.

The influence of local factors also clearly spread to surrounding areas. The effect of price fluctuations spreading from Gangnam rather than Gangbuk, and from the metropolitan area rather than provincial metropolitan cities, was analyzed to be greater.

It was explained that last year, as reconstruction expectations rose in some areas such as Seocho, Gangnam, Nowon, and Dobong in Seoul, and the GTX-C line project became visible in Anyang and Gunpo, housing prices increased significantly not only in those areas but also in surrounding regions.

The Bank of Korea emphasized that it empirically analyzed that housing sales and jeonse prices in Gangnam and the metropolitan area strongly affect surrounding areas, and also confirmed that the spillover effect of housing prices is greater during periods of price increases than during periods of price declines.

The Bank of Korea stated, "When establishing housing and regional development policies for specific areas, it is important to consider not only the direct effects on the area but also external effects such as spillover effects on surrounding areas," and added, "It is also necessary to consider that the magnitude of spillover effects may vary depending on changes in housing market conditions, such as the relatively smaller spillover effects during housing market stabilization periods."

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