Housing Price Bubble and Housing Policy in Korea

There have been hot debates on housing price bubble throughout the world after U.S. sub-prime mortgage crisis. Those debates, however, could not provide logical understanding on housing price bubble. This paper thinks that the current housing price bubble policies adopted by many countries including Korea appear to be based on insufficient understanding of the dynamics of the housing price bubble. Thus, this paper tries to answer the following questions : What is meant by housing price bubble? How can one measure it? What are its causes? What are its impacts? What are its policy implications? This paper is interested in discussing the possible answers to the above five questions. We will discuss the definition of the housing price bubble; the methods of measuring the bubble and the application of these methods to Korean experiences; causes of the bubble; the U.S experience of the recent sub-prime mortgage loan related to the burst of the housing price bubble; the policy implications of the housing price bubble for Korea. This paper concludes that Korea has had housing price bubble in selected areas. However, this bubble did not provoke a crisis similar to the U.S. sub-prime mortgage crisis. It is unlikely that Korea will experience the market meltdown because of the price bubble. However, the undisciplined lending practices and the risky types of mortgage products could cause serious damage to the housing and the mortgage market even without violent price bubble. The policy implication is that the government should be more concerned as much with the mortgage lending practices and mortgage products as with speculation and price decrease.