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Mortgage subsidies and housing prices: Evidence from the Korean 85m² size eligibility

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  • Na, Myeonghwan
  • Won, Cheongyeon

Abstract

When South Korea expanded access to subsidized mortgages for apartments smaller than 85 m² in 2014, policymakers aimed to improve housing affordability for first-time buyers and low-income households. The 85m² threshold, Korea's long-standing "national standard housing" size, determined eligibility for the mortgage expansion program (Didimdol Loan), which offered below-market interest rates with an additional 0.2 percentage point discount for eligible units. Using transaction-level data from 2010–2018 and employing regression discontinuity in combination with difference-in-differences (RD-DID) designs, we identify price discontinuity around the 85m² threshold following the 2014 mortgage expansion. In Seoul, prices of eligible apartments (below 85m²) increased by approximately KRW 220,000 per square meter (USD 150)—roughly KRW 17 million per unit (USD 13,000)—, compared to apartments just above the threshold. Our estimates suggest almost complete capitalization of the mortgage subsidy into housing prices, demonstrating that mortgage expansion must be carefully implemented to avoid unintended price capitalization in supply-constrained markets.

Suggested Citation

  • Na, Myeonghwan & Won, Cheongyeon, 2026. "Mortgage subsidies and housing prices: Evidence from the Korean 85m² size eligibility," Finance Research Letters, Elsevier, vol. 102(C).
    • Handle: RePEc:eee:finlet:v:102:y:2026:i:c:s1544612326006483
    DOI: 10.1016/j.frl.2026.110120
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    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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