Abstract
When South Korea expanded access to subsidized mortgages for apartments smaller than 85 m² in 2014, policymakers aimed to improve housing affordability for first-time buyers and low-income households. The 85m² threshold, Korea’s long-standing “national standard housing” size, determined eligibility for the mortgage expansion program (Didimdol Loan), which offered below-market interest rates with an additional 0.2 percentage point discount for eligible units. Using transaction-level data from 2010–2018 and employing regression discontinuity in combination with difference-in-differences (RD-DID) designs, we identify price discontinuity around the 85m² threshold following the 2014 mortgage expansion. In Seoul, prices of eligible apartments (below 85m²) increased by approximately KRW 220,000 per square meter (USD 150)—roughly KRW 17 million per unit (USD 13,000)—, compared to apartments just above the threshold. Our estimates suggest almost complete capitalization of the mortgage subsidy into housing prices, demonstrating that mortgage expansion must be carefully implemented to avoid unintended price capitalization in supply-constrained markets.
Cheongyeon Won
Assistant Professor
Research interests: Cliometrics, Labour Economics, Development Economics and Industrial Policy.