Determinants of the Housing Investment during Periods of Increasing Housing Price: Focusing on “Gap Speculation”

The aim of the study is to examine the determinants of housing gap speculation from 2017 to 2020. Housing price have steeply increased last 5 years in Korea. The median apartment sale prices in the Seoul Metropolitan Areas (SMAs) increased by about 60.5% from about 370 million won in 2017 to about 590 million won in 2021. Housing policy makers believe that young people who cannot afford to buy a house with their own income and assets entered the housing market through gap speculation, and thereby housing prices skyrocketed with increasing housing effective demand. Therefore, various demand-side strategies have been applied to curb speculative demand. Extensive financial borrowing restrictions and increase in tax, nevertheless, have not stopped the rise in housing prices. This study focuses on what gap speculation is and what characteristics gap speculators have. Theoretically, it can be conceptualized as buying a house on a cheonsei contract - a kind of rental agreement, but a unique Korean way to rent a house with only a long-term and large deposit - for the purpose of capital gains without a plan to live there. From the empirical study, we can find several things as follows. Contrary to the stereotype about young speculators, gap speculator tends to increase with age. They can be estimated as a group that are low-income groups compared to renters or homeowners but increase savings by reducing current consumption for future consumption. Their net assets are relatively high, but they reduce housing costs by living in small, old, and poor places. It implies that actual gap speculators can be not general speculators, but can be those who really need affordable places to live in someday.