Dynamic Feasibility Analysis of the Housing Supply Strategies in a Recession: Korean Housing Market

Abstract

Establishing housing supply strategies in a stagnant housing market is a significant issue because of two contradictory and concurrent problems. The first is the long-cherished desire to supply low-cost housing for low- and middle-income families, and the second is the problem of high vacancy levels attributable to low-level sales rates. Governments have been continuously implementing various supply policies intended to distribute houses evenly and to keep supply and demand in balance. However, it is difficult to satisfy consumers, owners, and suppliers because of conflicting needs and requirements. This paper therefore applies a system dynamics methodology and offers an integrated model that encompasses the for-profit behavior of each market participant, analyzes supply policies, and suggests appropriate and effective policies. Utilizing the case of the Korean housing market, the proposed model simulates future trends in house prices, balances between supply and demand, construction companies’ earnings, and vacancy rates when various housing supply scenarios are applied. With extensive studies with the results from the simulation model, the authors recommend using private construction companies to stabilize housing distribution rates and the private supply system and ensure a balance between supply and demand.