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Seoul Journal of Economics - Vol. 35 , No. 1
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Seoul Journal of Economics - Vol. 35, No. 1, pp. 89-116
Abbreviation: SJE
ISSN: 1225-0279 (Print)
Print publication date 28 Feb 2022
Received 22 Nov 2021 Accepted 25 Nov 2021
DOI: https://doi.org/10.22904/sje.2022.35.1.004

Housing Finance: Comparison between South Korea and the US
Inho Song ; Peter Chinloy
Inho Song, Senior Researcher, Korea Development Institute, Sejong, Korea, Tel: 82-44-550-4136, Fax: 82-44-550-4088 (inhosong@kdi.re.kr)
Peter Chinroy, Quant Adivisors, Washington DC, US, Tel: 1-215-204-4896 (peter.chinloy@gmail.com)

JEL Classification: E47; E52; E58

Abstract

This study compares housing finance in South Korea(hereinafter referred to as “Korea) and the US. South Korea’s unique system allows housing finance for homeowners and tenants. The US, similar to most countries, confines housing finance to owners. Derived are incidences from shocks in house prices and interest rates between zero and one. When incidences are zero, relative rents do not respond to shocks in interest rates and prices. When incidences are one, there are complete markets, including for tenants. Tenants are able to lay off 100% of interest rates and price shocks through the capital market.

Estimation is for the US with a mortgage-only market, alongside the Korean housing finance for 1960–2017. The Korean housing finance system satisfies market completion, with incidence of 97%. As confirmation of complete markets, rent-price ratio adjusts within a year. By contrast, the mortgage-only US has a price incidence below 20%, and adjustment takes 10 years. Interest rate incidence in Korea is between 42% and 53%. In the US, the mortgage-only market is sluggish, with interest rate incidence between 15% and 20%.

Keywords: Housing finance, Mortgage market, Rent-to-price ratio
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