Compounding financial repression with rigid urban regulations : lessons of the Korea housing market

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Abstract
The objective of this paper is to explore the interactions between financial and urban policies, and their joint impact on the performance of the housing sector during the course of economic development. The central hypothesis is that extended periods of financial repression and the scarcity of mortgage lending have generated significant distortions in the output of the Korean housing sector. In addition, combined with very restrictive urban planning and land use regulations, this financial situation may have led to under-investment in the urban sector of Korea during much of the past two decades. A broader question which is left unaddresssed is whether such distortions and under-investment have been an integral component of the rapid growth policies of other East Asian market economies such as Japan and Taiwan, or what differences there might be. The analysis in the paper progresses from economic growth policies and directed credit to urban outcomes; the key link is the behavior of Korean households.
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