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Rent/Price Ratio, Rent, and Housing Price: Case of Seoul, Daejeon, and Daegu

Han, Dong-Geun 1

1영남대학교

Accredited

ABSTRACT

The paper identifies factors affecting rent/price ratio (thereafter, R/P ratio) in Korean housing market, and investigates if the R/P ratio could be a predictor on rent and house price movements in the near future. We use monthly data from 1998 to 2009 in Seoul, Daejeon, and Daegu metropolitan city. Results are as follows. Firstly, the R/P ratio is positively related with interest rate and negatively with expected capital gains, which is supported by a traditional asset-price theory. Secondly, the R/P ratio predicts rent movements, but does not predicts changes in housing price well. Thirdly, the impact of the R/P on the rent gets smaller as the location gets distanced further from Seoul. Lastly, interest rate influences housing price but not rent. With all the results combined, we may say that the changes in housing price are largely influenced by interest rates and expected capital gains, but not by rents. Rents, however, are affected by the changes of housing price. Our results imply that stabilization of housing price is necessary to stabilize rents, and not vice versa.

Citation status

* References for papers published after 2022 are currently being built.