Macroprudential Policy and Housing Price Expectation during Bubble: in the case of Jeonse System

Abstract

This paper examines whether macroprudential policies (lower LTV ratio) influence future expectations in the housing market during Korea’s housing boom of the 2010s. From the unique Korean lease system known as Jeonse, I construct a more accurate rent-to-price ratio using the Jeonse deposit relative to housing prices (the Jeonse ratio). Exploiting a natural experiment based on a regulatory threshold, where apartment units priced above and below 900 million won are subject to different LTV limits, I assess the policy impact. The empirical results indicate that units under stricter regulation are associated with lower expectations of future housing price. These findings imply that while the Korean government may not have successfully curbed actual housing prices, it has effectively reduced housing price expectations.