Unintended Consequences of Housing Policies: Evidence from South Korea

South Korea has crafted a series of policy measures to regulate or stimulate housing markets. One interesting feature is that policy makers and market observers have paid enormous attention to one particular housing market, the Greater Gangnam Area in Seoul. The area is an upscale and self-sufficient urban neighborhood with high-priced residential properties; the nation’s housing policies have been directed toward tempering housing price appreciation there. This leads to the following research question: whether the housing policy tools achieved the intended goals or not. This study examined the differential impacts of government-initiated policy measures on housing submarkets in the primary real estate market. Quasi-experimental econometric evaluations, which are AITS-DID methods, revealed that recent policy measures did not achieve the intended goal of housing price stabilization. Rather, those policy instruments brought about unintended consequences. The Housing Welfare Roadmap measure was intended to cool down the Gangnam housing market, but it in fact increased the Gangnam housing prices by 5.69 percent points in comparison to the non-Gangnam area. In order to tackle housing market imbalances, the government should devise long-term urban and regional planning strategies to create self-sustaining communities suitable for various population groups so that they can compete with existing strong real estate markets.