The Global Financial Crisis and Housing
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The Global Financial Crisis and Housing

A New Policy Paradigm

Edited by Susan Wachter, Man Cho and Moon Joong Tcha

This innovative book analyses the role played by real estate markets in global financial stability and examines the fragile link between the two. Through what transmission channels do housing market cycles influence broader economic systems? How has the Global Financial Crisis shifted our view and understanding of these linkages? This detailed book answers these questions in an international comparative perspective. Specific topics covered include macroeconomic transmission channels of the housing cycle, the role of housing in the finance system, construction financing as a cycle amplifier, and various related public policy issues such as the policy remedies needed to deal with housing and mortgage-driven crises.
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Chapter 3: Housing and business cycles in Korea: assessing the role of housing volume cycles

Young Il Kim


This chapter studies the role of housing volume cycles in macroeconomic fluctuations in the Korean economy. It is often argued that the housing boom and bust in major OECD countries (including the U.S.) served as a main cause of the recent global financial crisis. The abrupt rise of home prices and household debts up to the unsustainable levels and their subsequent fall resulted in failures of financial institutions and recessions. In addition, it is also argued that the significant contraction in residential buildings investment prior to the subprime mortgage crisis had contributed substantially to the recession (Leamer 2007, 2009). Housing cycles may interact with macroeconomic fluctuations through changes in home prices, household debts and residential investments (Figure 3.1). Previous studies focused mainly on the role of house prices and household credits rather than the quantitative contributions of housing volumes in explaining the macroeconomic fluctuations.

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