Local Factors Driving Price Independence     in the Korean Housing Market 

- Four Gangnam districts in Seoul, Busan, and Ulsan show greater decoupling

- HF releases its study entitled ‘Trend and Causes of House Price Decoupling of the Seoul Metropolitan Area, Busan, and Ulsan’

A recent study found that local factors that have built up in the Korean housing market have resulted in isolated pockets of housing market wealth across the nation. Among them, the four Gangnam districts (Gangnam, Seocho, Songpa, and Gangdong) in Seoul, Busan, and Ulsan have seen various local factors, such as local development projects, significantly affecting house prices.

Korea Housing Finance Corporation(HF, CEO Lee Jung-Hwan)’s Housing Finance Research Center released the study on July 10, 2019. The study is entitled ‘Trend and Causes of House Price Decoupling of the Seoul Metropolitan Area, Busan, and Ulsan.’ The study was conducted on gu-districts in six special and metropolitan cities (Seoul, Busan, Daegu, Daejeon, Gwangju, and Incheon) and 97 cities in Gyeonggi Province. For a period from 2004 Q1 to 2018 Q3, the study monitored the house price index and the consumer price index in these areas.

□ Local factors gaining strength in the housing markets of the four Gangnam districts, Busan, and Ulsan

The four Gangnam districts have differentiated themselves with their own social, economic, and cultural characteristics. For this reason, local factors* are the main driver of the housing market in these districts compared to other regions.

The study also found that in Busan, national factors** have an insignificant impact on house prices. In and around 2005, large-scale urban redevelopment and the relocation of public agencies to a suburban innovation city gained speed in Busan, driving up jeonse and home prices. From 2010 to 2014, the city witnessed supply and demand imbalances due to the demolition of an increased number of dilapidated homes and an insufficient supply of new apartment units. This imbalance caused a rise in home prices. Also, Busan’s housing market is affected by other strong local characteristics such as a shrinking population, rapidly ageing population, and a higher density of old and decrepit houses. 

   * Local factors: Demographic changes, economic growth, etc., unique to a     region 

  ** National factors: Factors determined by nation-wide phenomena

The impact of local factors had been relatively weak in Ulsan compared to other metropolitan cities. However, after 2010, the city has experienced ▲ a growth in population and households, ▲ a decrease in house prices relative to incomes, ▲ a jeonse price trend different from the national average, and ▲ a sluggish economy and unsold new apartment units. This had led local factors to have a much greater impact on the city’s housing market.

HF Researchers Baek In-Geol and Choi Young-Sang said, “As Busan is undergoing urban regeneration projects across the city, including Busan North Port, these large-scale projects will continue to lead local factors to play a greater role than before. We expect that the International Industrial Logistics City Development Project will improve traffic conditions greatly in the Gangseo-gu area of Busan.” 

□ Decoupling of Busan and Ulsan from the Seoul metropolitan area in home prices

In 2017, housing prices in the Seoul metropolitan area went up, fueled by a rise in the Gangnam districts. However, Busan and Ulsan experienced a slowdown in the local economy and a consequent freeze in the housing market. This decline led to a trend of significant differences in house prices at the regional level, representing a decoupling of the Gyeongnam area from the Seoul metropolitan area. 

According to the study, national factors remained strong across the nation’s housing market from 2004 Q1 through 2009 Q4. However, they gave way to local factors from 2010 Q1 to 2015 Q2, resulting in differential house price movements between the Seoul metropolitan area and other parts of the nation.

The study found that this trend of decoupling is caused by ▲structural and fundamental changes to the housing market, ▲ supply and demand imbalances, ▲ the government’s housing market regulations and regional development policies, and ▲ characteristics unique to each region. 

An HF official said, “In and around 2010 and 2015, both housing market regulations and stimulation measures were implemented differently in the Seoul metropolitan area and other parts of the nation. This weakened the role of the Seoul metropolitan area as a driver of the national housing market but strengthened its local characteristics. We believe that this study can provide a basis on why housing market policies should be developed and implemented differently at the national and local levels.”