Investigating the Convergence of Regional House Sales-Prices in Korea

This paper tests the convergence of transaction-based house prices among 15 regions in Korea during 2006∼2014, using a pairwise approach and CIPS panel unit root tests. The results based on pairwise tests show that the house price differentials for most groups are not in favor of convergence with the following grounds. First, the proportion of having stationary process is close to or slightly higher than the nominal levels of the test statistics. Second, the percentage of house price gaps satisfying cotrending condition as well as cointegration condition is much less than the levels of test statistics. The results of CIPS test also show that regional house price gaps do not converge towards the national average of house prices. This finding implies that the house price differentials are not attributed to the transitory convergence process and thus the deviations from the national house price do not tend to disappear. Thus, faced with the long-run house price differentials, policy makers should establish the region-specific as well as national housing policy, considering such disparities across the regions as population, taxation and the condition for regional housing market, itself.