Estimating the Home-Purchase Cost of Seoul Citizens

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1 Esimaing he Home-Purchase Cos of Seoul Ciizens Deokkyo Oh Texas Tech Universiy / Docoral suden Rawls College of Business Box 4211 Lubbock, TX , U.S.A. (Tel) / (FAX) deokkyo.oh@u.edu James R. Burns Texas Tech Universiy / Professor Rawls College of Business Box 4211 Lubbock, TX , U.S.A. (Tel) / (FAX) Jim.burns@u.edu

2 ABSTRACT Seoul ciizens are currenly suffering from high housing price. Home prices have risen more rapidly han salaries so owning a housing uni (aparmen, condominium, or singlefamily home) in Seoul is becoming more difficul han ever. Therefore, his research examines he behavior of average Seoul ciizen in owning housing uni in Seoul, Korea, paricularly in erms of he lengh of ime required o afford a house uni. This research esimaes ha he opimal feasible range of growh rae of housing price ha people can purchase he housing unis and complee he loan paymen shall be below 4.4% and i will ake abou 18.7 years in maximum afer geing a job o own housing uni in Seoul ha is currenly valued a $3, where he growh rae of income is 2.97% and consumpion prices are increasing a a rae of 2.9%. KEYWORDS: home-ownership, housing affordabiliy, sysem dynamics, income (salary), expendiure, housing price, wealh effec. INTRODUCTION Home-ownership is very imporan o Korean people. I is regarded as a sign of success: hus, he Korean people hink hey have o own houses wihin heir lifeime. Furhermore, owning real esaes in Korea is he mos common invesmen mehod uilized o increase he wealh of boh people and companies. This is largely because he value of real esae increases more han any oher asses. As housing prices rise, he invesmen on housing uni s consrucion will increase because of high reurn on invesmen (ROI); hus, he cos of home-ownership will increase. (Linneman e al. 1992) This rising housing price les homeowners realize a high reurn by selling heir homes while people wih no home-ownership, especially young people in Seoul give up or pospone owning housing uni because home-ownership is no affordable. This is due o he increasing gap beween housing prices and heir incomes. Due o skyrockeing housing prices in Seoul, households ha are headed by individuals aged 3~44 are repored o be less able o afford home-ownership han older people 1. I is also repored o ake 22~24 years o own an aparmen of 3-bedrooms and 2-bahrooms in Seoul 2. So, young people 1 hp://news.donga.com/3/all/291221/ /1 2 hps://member.pressian.com/aricle/aricle.asp?aricle_num=36911&secion=2 1

3 have o ren, raher han o own. The goal of his research is o examine when i is possible for young people in his curren economy o own housing uni afer geing heir jobs. The behavior of average people in purchasing a housing uni shall be simulaed. When he normal household in Seoul can own a housing uni wih he assisance of a morgage loan program and how long i akes for he household o be released from he pressure of a morgage loan shall be invesigaed ogeher. Furhermore, he opimal range of housing price growh rae for people o own housing unis and complee he loan paymen will be examined and discussed. CURRNET STATUS OF SEOUL CITY According o he saisics of Seoul ciy (27), 44.9% of ciizens own housing unis while.14% ren as shown in Figure 1 below. I can be inferred ha high cos of owning a housing uni has become a big burden on he family and has resuled in more people rening housing unis o save money. Ye, Figure 1 ells us ha rening has decreased as ime progresses while owning a home has increased. I is hough o be because of a high expeced ROI on housing unis as housing price rises. From 2 o 28, housing prices rose faser han consumpion prices so a high ROI was guaraneed (refer o Table 4). Figure 1 Trend of rening and owning housing uni 2

4 Specifically, ren is classified ino lump-sum deposi, monhly ren, and free ren (Saisics of Seoul Ciy 27). Lump-sum deposi is he auhenic policy ha is popular in Korea. This policy allows enans no o pay monhly as hey deposi a much larger amoun of money o he landlords han he monhly ren fee. Landlords can earn money by deposiing he money ino an ineres accruing bank accoun which would allow he landlord o acquire he monhly ren fee from he ineres paid o he accoun (Hando 1998). Porions of hese hree ren ypes are compared in Figure 2 below. I shows ha lump-sum deposi is much more popular han monhly ren in Seoul. Figure 2 Comparison of ren ypes There are five ypes of housing unis in Seoul: a house, an aparmen, a row house, an aparmen uni wihin a privae house, and a dwelling uni in a non-residenial building (Saisics of Seoul Ciy 27). Table 1 below shows he number of housing unis per ype. As he number of aparmens and aparmen unis in a privae house has increased, oal number of housing unis has also increased. However, during his increase in he number of he wo aparmen ypes, he oher ypes of housing unis have decreased. Aparmens have aken over % of he oal housing unis. This increase in he number of aparmens is parially due o he preference of Seoul ciizens o reside in an aparmen over oher ypes of housing unis and he high expeced ROI on an aparmen caused by rising housing 3

5 prices. Table 1 Types of housing uni Year House Aparmen Row house Aparmen unis in a privae house Dwelling uni in a non-residenial building Toal 2 4,87 1,28,68 146,877 43,2 3, 2,321, ,818 1,37,113 14, ,479 3, 2,369, ,72 1,33,68 143,82 442,769 3, 2,391,36 Source: Saisics of Seoul Ciy 27 Nex, household income in Seoul shall be invesigaed. In 27 he average monhly income and expendiure for salary and wage earners households in Seoul are 3,691. and 2,743.2 housand Korean won. Table 2 and Table 3 below show he specific income and expendiure, respecively. As shown below, monhly income has grown from 2,819 housand Korean won in 22 o 3,691. housand Korean won in 27. Monhly earnings are 3,223.7 housand Korean won in 27 and he earnings from he household head ake he larges porion in oal earnings. This means ha he Korean family largely depends on he household head s earnings. Average growh raes of monhly income and earnings are calculaed as.8% and 6.12%. Table 2 Monhly income Earnings (Uni: Korean won in housand) Year Income Toal Household head Spouse Oher household members Oher 22 2,819. 2,4.7 1, ,82.1 2,742. 2, , , , , , , ,49.8 3,6.6 2, ,691. 3, , Source: Saisics of Seoul Ciy 27 4

6 The annual growh rae of monhly expendiure, 4.8%, is lower han ha of monhly income. On average expendiure has been 77.1% of income and 87.78% of earnings. The maximum raio of expendiure o income is 78.% and he minimum is 76.1%. For he raio of expendiure o earnings, he maximum is 91.23% and he minimum 86.32%. Table 3 Monhly expendiure (Uni: Korean won in housand) Year Expendiures Consumpion expendiures Food & beverages Housing Fuel, ligh & waer charges Furniure & uensils Clohing & foowear Medical care Educaion Culure & recreaion Transporaion & communicaion Oher consumpion expendiure Non-consumpion expendiures Source: Saisics of Seoul Ciy 27 Table 4 below shows he growh rae of salary, he consumer price index, and he uni price of aparmen in Seoul from 2 o 28. This able ells us ha he growh rae of salary oscillaes over years bu he consumer price index and he aparmen price per 3.3m 2 are ever-increasing. Average growh raes of salary, he consumer price index, and he aparmen price are calculaed as 2.97%, 2.9%, and 13.27%. These growh raes shall be applied in his simulaion.

7 Table 4 Trends of growh rae of salary, consumer price index, and aparmen price Year Growh Rae of Salary (%) Consumer Price Index Aparmen Price per 3.3 m 2 (Korea won in housand) , , , ,88. Source: Saisics of Seoul Ciy 27 SCENARIO In Korea, he earnings from he head of household are he larges porion of a family s earnings (refer o Table 2) so i is assumed ha he household income comes only from he head of household. Figure 3 depics he scenario of a head of household for his career and family over life. He ges a job a age 2 and reires a 8. He ges married a 32 and has wo children in his lifeime. Figure 3 Scenario for job and family His salary increases as he is promoed. Afer reiremen, he will ge anoher job ha provides him wih a lower salary. His income is assumed o be as follows: -age 2 ~ 3: $2,/year, 6

8 -age 31 ~ 3: $32,/year, -age 36 ~ 42: $38,/year, -age 43 ~ : $46,/year, -age 1 ~ 8: $,/year, -and age over 8: $2,/year 3. The income before reiremen shall be increased annually by he growh rae of salary (2.97%). Iniial income afer reiremen is se o be $2, and shall be increased by 2.97% annually afer reiremen age of 8. Expendiure is assumed o increase as family members increase. The household spends $12, annually before marriage, ha is, in he case of a single member family, and spends $2, per year in oal afer marriage bu before having baby. As one baby is born, annual expendiure of household becomes $24, and afer anoher baby is born, he household spends $28, annually. These expendiures shall be increased by he annual growh rae of consumer price (2.9%) in his simulaion. Income ax is assumed o be differeniaed by he number of family members because he amoun of deducion increases as family members increase. Income ax raes are depiced as follows: -1 family member: 1%, -2 family members: 8%, -3 family members: 6%, -and 4 family members: 4%. A morgage loan program can cover up o 6% of he housing price so a household can own a housing uni when i has abou % of he housing price (4% of he housing price plus oher coss). The household deposis he amoun of (income minus ax minus expendiure each year) unil is deposi becomes more han % of he housing price. As is deposi reaches he desired amoun, he household buys a housing uni. Afer buying i, he household pays he morgage loan, ineres and a porion of principal. While paying he morgage loan, i is assumed ha he household shall no deposi money for a home purchase ino is bank accoun. The ineres raes on deposi and morgage are se as he fixed raes of 4.% and 6.1%, respecively. The laer is he average ineres rae of morgage loan programs in Korea 4. For calculaion convenience, he currency of Korean won o dollar is assumed o be 1 Korean won per dollar. 4 hp:// 7

9 The ax rae for buying housing uni is se o be 6% of he housing price and oher cos is %. Finally, he housing price is iniially se o be 3, dollars and shall be increased annually by he growh rae of housing price. SIMULATION This research is described by he Causal Loop Diagram (CLD) as shown in Figure 4 below. As he income and he number of family members increase, he expendiure will increase bu he residual income will decrease due o he increase in expendiure. The increase in residual income proporionally increases he deposi and as he deposi increases he probabiliy o purchase he housing uni will increase. As people purchase he housing uni, he morgage loan program begins and people sar paying he loan off. This loan paymen may decrease he expendiure in he case of sligh increase in housing uni values a he beginning of loan paymen bu will increase i due o he wealh effec ha explains he endency ha people consume more as heir asse values are expeced o increase and make hem feel wealhy, hough asses are no convered ino cash (Lee 2). Tha is o say, as people purchase heir housing unis whose values are expeced o increase, people hink hey are wealhy so hey consume more alhough hey pay he loan off and housing unis are no sold and convered ino cash. Figure 4 The causal loop diagram hp://en.wikipedia.org/wiki/wealh_effec 8

10 This simulaion shall be performed in Vensim program according o scenario explained above. The simulaion model is formulaed o be composed of 3 secors: salary, morgage, and deposi and loan paymen. The salary secor deals wih he dynamics of income, expendiure, ax, and residual income; he morgage secor deals wih he dynamics of housing price and morgage loan; and he deposi and paymen secor deals wih he behavior of deposi and loan paymen from residual income. Diagrams of he hree secors are shown in Figures hrough Figure 7 below. The annual income and expendiure are shown in Figure below and he growh raes have been adaped o examine he dynamic behaviors of income and expendiure. In Figure 7, he salary earner s household deposis he residual income ino he bank accoun unil he deposi reaches he amoun of money necessary o own a housing uni, (oal cos for housing-deposi) (refer o Figure 6). Then he household doesn deposi unil i pays off he morgage loan, boh he principal and he ineres, compleely. Afer compleely paying he loan, he household resars is monhly deposis. Income rae Income NS rae NS RR Residue <Time> <GRN> Muliplier M Norm <Ineres on loan> <Time> Tax Expendiure <Salary 1> <Salary 2> <Salary 6> <Salary 3> <Salary > <Salary 4> Tax rae <Income rae> Expendiure decrease <Expendiure Norm for 1 members> <Expendiure Norm for 2 members> <Expendiure Norm for 3 members> <Expendiure Norm for 4 members> Tax rae 1 Tax rae 2 Tax rae 3 Tax rae 4 No. of family members <Time> <Time> Decrease of family members Income Growh 1 Salary 1 Income GR Norm Income Growh 2 Income Growh 3 Salary 2 Salary 3 Expendiure GR Norm Expendiure Growh 1 Expendiure Growh 2 Expendiure Norm for 1 members Expendiure Norm for 2 members Income Growh 4 Income Growh Salary 4 Salary Expendiure Growh 3 Expendiure Norm for 3 members Income Growh 6 Salary 6 Expendiure Growh 4 Expendiure Norm for 4 members <Time> Figure SFD of Salary There are hree main sock and flow diagrams (SFD s) for income, ne income (expressed 9

11 as NS ), and residual income ( Residue ) in he upper side of Figure. Six ses of salary are se o grow 2.97% ( Income GR Norm ) annually in he lower lef side and four ses of expendiure differeniaed by he number of family members in he righ side are also se o grow 2.9% ( Expendiure NGR Norm ) annually. To express he wealh effec in his model, he muliplier shall be applied. The muliplier in his model is programmed as if hen else (Ineres on loan=, if hen else (Loan period=, 1-M Norm, 1+M Norm), 1) where M Norm is se as.1. This equaion means if ineres on loan and loan period are equal o zero, ha is o say, if here is no home purchase, he muliplier shall be.9, if ineres on loan is equal o zero bu loan period is no zero (if here is a home purchase), he muliplier shall be 1.1, and finally if ineres on loan is no equal o zero, he muliplier will be one (1), and reflecs he wealh effec explained above. Consider nex he srucure shown in Figure 6. Housing price is he core variable in he morgage secor of he model shown in Figure 6. Almos all variables inside his secor are relaed o and are calculaed from i. Anoher imporan variable is Gap beween loan and oal cos expressed as (oal cos for housing-morgage loan) in his simulaion. I is he amoun of money necessary o buy a housing uni. Growh rae Norm of housing price is se as if hen else (Deposi="Gap beween loan and oal cos",, GRN) where GRN varies for calculaion convenience. In Figure 7, as he household deposis more funds each year, ineres on he deposi accrues. The deposi coninues o grow from conribuions and compounded ineres. When he deposi exceeds he required gap beween he price of he home and he maximum principal amoun, he household buys he housing uni wih he assisance of a morgage loan program and hen makes paymens on he loan. This means he flow of annual residual income ( RR ) is moved from he Deposi rae o he Loan paymen if he deposi is greaer han or equal o he necessary cash o own he housing uni. To simulae his dynamic movemen, Deposi rae and Loan paymen are se as if hen else (Time=2, RR + Ineres, if hen else (Deposi=Gap beween loan and oal cos,, RR + Ineres)) and if hen else (Time=2,, if hen else (Time>2, if hen else (Loan=,, if hen else (Deposi=Gap beween loan and oal cos, if hen else (RR=,, RR), )), )), respecively. 1

12 GRN Growh rae Norm of housing price % of morgage Morgage loan Housing price Growh rae of housing price <Gap beween loan and oal cos> OC norm <Deposi> Tax for housing Oher coss <Time> Gap Toal cos for housing Tax rae for housing <Deposi> Gap beween loan and oal cos Figure 6 SFD of morgage <RR> Ineres rae Ineres rae on loan <Time> LT Ineres Ineres on loan Deposi rae Deposi Principal Loan <RR> <Gap beween loan and oal cos> Loan paymen <Deposi> <Time> LPR Loan period Toal deposi rae Toal deposi Figure 7 SFD of deposi and loan paymen Le s denoe he growh rae of salary and he iniial values of six salary ses as follows: growh rae of salary= GR =2.97%, I S 1 =$2,/year, S 2 =$32,/year, S 3 =$38,/year, S 4 =$46,/year, 11

13 S =$,/year, and S 6 =$2,/year where S i is he iniial value of he i h salary level. Salary is assumed o grow by he annual growh rae so he general erm of salary excep S 6 is S = + GR ( 2 ) for1 i. i ( 1 I ) * Si As S 6 is assumed o increase when >8, i is wrien as S GRI ) * = ( S ( > 8 ). 6 This Si is he annual income rae a and he sum of income rae is oal income so income rae and oal income are expressed as follows: d( TI) IR = = when < 2, d S 1 for 2 3, S 2 for3 3 <, S 3 for3 42 <, S 4 for 42 <, S for 8 <, and S 6 for8 8 < ; Toal income= TI = 3 3 IR) d = S1d + S 2d + S3d + S 4d + Sd ( S d Consider nex household expendiures. For expendiures, he growh rae and he iniial values of four expendiure norm ses are denoed as follows: growh rae of consumpion price= GR =2.9%, E EN =$12,/year, EN 1 2 =$1,/year, EN 3 =$8,/year, and EN 4 =$7,/year 12

14 where EN k is he iniial value of expendiure norm when he number of family members is k. The expendiure norm increases by he growh rae so he general erm of expendiure norm is EN = + GR where1 k 4. Annual expendiure is calculaed by k ( 1 E ) * EN k AE * EN k = m * k where he muliplier m is classified by purchasing he housing uni and paying he loan off as follows: m=.9 before purchasing he housing uni, m=1 during loan paymen, and m=1.1 afer compleing loan paymen. As i is projeced ino he ime frame, i is expressed as AE = when < 2, * E for2 32, m 1 m 2* E2 * for32 < 34, m 3* E3 * for34 < 36, m 4* E4 and m 2* E2 * for36 < 8, * for8 < 8. Annual residual income is calculaed by RR = IR Tax AE. This goes o deposi rae as he household deposis. Toal deposi is expressed as D = DRd = RR * (1 + I d ) d where D is he oal deposi, DR is he annual deposi rae ( DR = RR *(1 + I d ) ), RR is he annual residual income, and I d is he ineres rae on deposi. The housing price is calculaed by HR = ( 1 GR ) * HR + HR where GRHR is he growh rae of housing price, HR is he iniial housing price, and HR is he housing price a ime. The gap beween oal cos in buying a housing uni and amoun of loan means minimum 13

15 deposi amoun needed o buy a housing uni expressed as G = C L = 1.11* HR.6* HR =.1* HR where C is he oal cos of buying a housing uni and L is he amoun of loan. The principal of loan is generally calculaed by P = P 1 *(1 + I l ) S ( 1) where P is he principal a ime, S is he paymen of loan, and I l is he ineres rae on loan. The principal, P, increases when S < P 1 * Il and decreases when S > P 1 * Il. I can be expressed mahemaically as follows: P > P 1 when S < P 1 * I l ; P < P 1 when S > P 1 * I l. Iniial value of he principal is.1* HR in minimum because he household buys a housing uni when D.1* HR. RESULTS In his simulaion, he assumed salary variable rajecory is shown in Figure 8 below. Afer geing a job, income increases incremenally as he individual is promoed bu declines heavily afer reiremen. So, he period leading from he age of geing a job o reiremen age is he ime o save money for life afer reiremen. Figure 9 shows ha expendiure increases by annual growh rae in spie of he reduced family members afer reiremen and is varied wih he muliplier values. This various expendiure causes he various residual incomes shown in Figure 1. The residual income, ha is, he available income o deposi or pay he loan, means ha he available salary o deposi before buying a housing uni and pay he principal and he ineres of loan afer buying i. Figure 1 below depics he residual income afer geing a job. As we can see, during he period of from age 2 o 8, here is a posiive available salary bu afer 8, as salary is reduced afer reiremen, here is a shorage of available money. To solve his moneary shorage, he individual needs o have some addiional jobs or sell he housing uni o replenish funds 14

16 2, Income rae 1, dollar/year 1,, Time (Year) Income rae : curren Figure 8 Annual income 2, Expendiure dollar/year 1, 1,, Time (Year) Expendiure : 2% HPGR Expendiure : 2.% HPGR Expendiure : 3% HPGR Expendiure : % HPGR Expendiure : 13.27% HPGR Figure 9 Expendiure wih flexible m 1

17 dollar/year 8, 4, RR , -8, Time (Year) RR : 2% HPGR RR : 2.% HPGR RR : 3% HPGR RR : % HPGR RR : 13.27% HPGR Figure 1 Residual income wih flexible m Figure 9 and Figure 1 above show ha 13.27% growh rae of housing price has he leas expendiure and he greaes residual income because of unavailable home purchasing wihin lifeime. In his case, people canno purchase heir housing unis unil age 8 as housing price grows faser han he income growh rae so he expendiure is revealed o be he leas and he residual income he greaes because m=.9. The case of incomplee loan paymen is he second leas expendiure and he second greaes residual income (m=.9 before purchasing and m=1 afer purchasing). Firs, a simulaion shall be performed for he following growh raes of housing price, 13.27%, %, 3%, 2.%, and 2%. This will be performed o deermine he opimal growh rae of housing price. This simulaion will allow us o know which growh rae of housing price relaed o hose of salary and expendiure is opimal. Figures 11 hrough Figure 13 are he simulaion resuls. These hree figures show us ha a 13.27% growh rae of housing price can lead he average Seoul ciizen no o own a housing uni because he growh rae of he individual s salary is much lower han ha of housing price. In he case of % growh rae of housing price, i is esimaed o be possible o own a age 46.7 bu he head of household is supposed o reire a age 8 so he household can afford o pay he loan compleely. Furhermore, he family income declines afer reiremen, which resuls in he household selling he housing uni o replenish funds for life afer reiremen. In he cases 16

18 of 2% and 2.% growh raes of housing price, he head of household is esimaed o have sufficien funds on deposi a age 37.2 and 38, respecively and o pay he loan off perfecly a age and 1, respecively. In he case of a 3% growh rae of housing price, i is esimaed ha he head of household will have sufficien funds on deposi o buy a housing uni a he age of 39 and pay off he loan perfecly a age 2. The period of loan, ha is, he ime i akes in paying off he loan principal is esimaed o be 12.7 years in he case of 2% growh rae of housing price and 13 years in he cases of 2.% and 3% (refer o Figure 13). The case of 2% growh rae of housing price is esimaed o have he shores loan payoff period (ime beween sar of loan a reiremen age 8) among five cases. 2 M Loan M dollar 99, 4 492, , Time (Year) Loan : 2% HPGR 1 1 Loan : 2.% HPGR 2 2 Loan : 3% HPGR Loan : % HPGR Loan : 13.27% HPGR Figure 11 Toal amoun of loan Loan paymen 6, 4, 4 dollar/year 3, , Time (Year) Loan paymen : 2% HPGR Loan paymen : 2.% HPGR Loan paymen : 3% HPGR Loan paymen : % HPGR Loan paymen : 13.27% HPGR Figure 12 Loan paymen 17

19 2 Loan period Year Time (Year) Loan period : 2% HPGR Loan period : 2.% HPGR Loan period : 3% HPGR Loan period : % HPGR Loan period : 13.27% HPGR Figure 13 Loan period To obain he feasible, incomplee-loan and infeasible ranges of growh rae of housing price, we shall perform simulaion varying he growh rae of housing price from 2% o 6% wih he inerval of.%. Table shows he resuls of his simulaion. Table The summary of simulaion resuls Growh rae of housing price Age a which head of household can purchase house Loan paymen period Compleion of loan paymen* Years remaining o payoff morgage 2.% % % % % % % % % % %

20 6.% % * This simulaion is performed under he assumpion of 2.97% expendiure growh rae and 2.9% income growh rae. * 1 means he complee loan paymen and means he incomplee paymen. Le s see he infeasible range of housing price growh rae o purchase he housing uni. For people o purchase he housing unis during heir life ime, he growh rae of housing price should be below.9%. This means if he housing price growh rae is equal o or greaer han.9%, people will give up heir home purchase in heir life when he growh rae of expendiure is 2.97% and he income growh rae is 2.9%. The second range o invesigae is he incomplee loan range of housing price growh rae. When he housing price growh rae is equal o or greaer han 4.% and is below.9%, people will buy and own heir housing unis bu canno complee he loan paymen unil 8. In his range, i will be beer o sell he housing unis han o own o replenish he funds. The iming o sell housing unis will be he reiremen age a which he fund shorage will occur. The hird range is he feasible range of housing price growh rae. From Table above, he feasible range is revealed o be from 2.% o 4.%. In his range, people can purchase he housing unis and complee he loan paymen before reiremen. People will purchase a age 37.2 o This means people own heir housing unis 12.2 o18.7 years afer geing jobs and.2 o 11.7 years afer marriage. The loan payoff period is ranged from 12.7 o 13.7 years in his range of housing price growh rae. Loan paymen period is 12.7 years in he cases of 3. % and 4% of growh rae of housing price. This means hough people can purchase he housing unis laer han oher lower growh raes, people will pay he loan off faser han oher cases. The age of head of household a which he loan payoff is compleed is ranged from.2 o 7.. This means he head of household will release he burden of loan payoff a fifies. So people will own heir housing unis wih no deb abou 2 years afer marriage. CONCLUSION Simulaion resuls show ha if he growh rae of housing price is equal o or greaer han.9% people shall give up heir home purchase, if i is wihin he range of from 4.% o 19

21 .9% people will no complee he loan paymen hough hey purchase he housing unis, and if i is wihin he range of below 4.% people will purchase heir housing unis and complee he loan paymen before reiremen under he assumpion of 2.97% salary growh rae and 2.9% expendiure increase rae (refer o Figure 14). Regarding he loan period, he minimum is esimaed o be 12.7 years in he cases of 3.% and 4% of growh rae of housing price, and he maximum 13.7 years in he case of 4.4% housing price growh rae. Figure 14 The feasible, incomplee and infeasible range of growh rae of housing price Housing price is an imporan deerminan of he home-ownership affordabiliy. Rising prices impede prospecive home-buyers accumulaion of home down paymens, as a percenage of home price. Rising prices also raise he required monhly morgage paymen for a morgage loan of a given ype; as a resul, buyers mus have higher incomes o mee qualifying crieria. Thus, housing price is very criical in he housing marke (Linneman and Megbolugbe 1992). So, Korean governmen should ry o sabilize he housing price o alleviae he increasing burden of owning housing uni, o preven he derivaive effec of rising housing prices, and o sabilize he housing marke. This research has invesigaed he opimal growh rae of housing price under fixed growh raes of salary and expendiure and fixed ineres raes on deposi and loan. In oher words, hese raes are se as exogenous. Furher sudies will invesigae he opimal housing price appreciaion rae under varying and iner-relaing he growh raes of salary and expendiure and ineres raes. This means hese raes shall be endogenous in he fuure research o provide more dynamics o he model. These relaionships can limi he variables--salary, expendiure, ineres and housing price--so i may more specifically reflec realiy. To iner-relae hese raes, economic growh rae can be adaped basically. The source of hese raes shall be he economic growh rae and i will le all variables excep economic growh rae endogenous and reflec he real dynamism. 2

22 REFERENCES Blomquis, Glen C., Mark C. Berger, and John P Hoehn. New esimaes of qualiy of life in urban area. The American Economic Review 78:1 (1988), Glaeser Edward L. and Joseph Gyourko. The impac of zoning on housing affordabiliy. PhD diss., Harvard Insiue of Economic Research, 22. Hando, Chizko. A sudy of non-economic marke aciviy in Korean renal sysem, Chonsei. Ciy Research 4 (1998), Ji, Kyuhyun, Jungin Kim, and Jinyoo Kim. Housing affordabiliy index in Korea. Housing ciy 89 (26), Jin, Miyun. Housing affordabiliy for salary and wage earner s households of all ciies. Housing research 6:2 (1998), Lee, Jihoon. Housing price and consumpion. SERI Economy Focus 76 (2), Lee, Samsik. Causes of Low Feriliy and Fuure Policy Opions in Korea. Healh Welfare Forum (Jan. 26), -17. Linneman, Peer D. and Issac F. Megbolugbe. Housing affordabiliy: Myh or realiy? Urban sudies 29 (1992), Vol. 29, Roback, Jennifer. Wages, rens, and he qualiy of life. The Journal of Poliical Economy 9:6 (1982), Shin, Sangyoung and Sungwon Lee. The effec of borrowing consrains on homeownership affordabiliy: he case of aparmen houses, Seoul. Homeland research 4 (27), Sloje Daniel J. Measuring he qualiy of life across counries. The Review of Economics and Saisics 73:4 (1991), Saisics of Seoul Ciy, Seoul ciy, 27, available a sa.seoul.go.kr. Saisics of Seoul Ciy, Seoul ciy, 29, available a sa.seoul.go.kr. Sone, Michael E. Wha is housing affordabiliy? The case for he residual income approach. Housing Policy Debae 17:1 (26),

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