The sustained trend of the explosion of housing price in urban areas in Korea has been, for a long time, one of the most heated debates in Korea. This debate has been centered on the fundamental cause of housing price explosion. Most of policy makers, joumalists, ordinary citizens and even some academics tend to connect the housing price hike to what is called Gasooyo or “false demand as opposed to Shilsooyo or “true demand. Gasooyo refers to speculative demand, while Shilsooyo means normal demand. In urban areas in Korea, speculative demand is wrongly connected to “professional speculators who are perceived as immoral people. However, one must remember that even an ordinary consumerdoes speculate as long as he or she hopes to make some capital gains. The debate on housing price explosion begs some fundamental questions. Is housing price inflation due to speculative demand or normal demand? To what extent cost increase worsens housing price inflation? What is the contribution of housing supply to the stabilization of housing price? The objective of this study is to test the hypothesis that housing price explosion is attributable to the excess demand and construction cost increase. In other words, the hypothesis to be tested in this study refers to a combination of demand-pull and cost push theories of housing price hike. Housing demand in this study comprises the speculative demand and the normal demand. This study finds that cost increase does play a part in pushing up the house price and that the increase in supply does stabilize housing price. The most interesting finding is that the speculative demand contributes much more than normal demand to the explosion of housing price. The findings of this study have some important policy implications and it is hoped that they would be useful in improving the effectiveness of housing policy in urban areas in Korea.
l . Introduction
ll. Survey of Literature
lll. Model
lV. Data
V. Findings
VI. Conclusion