Dynamic analysis of the effects of mortgage-lending policies in a real estate market

The Korean government announced new policies to regulate mortgage lending that aim to decrease both the loan-to-value ratio and the debt-to-income ratio, in 2008. These policies were implemented on the expectation that they will control housing demand and stabilize house prices, focusing only on the current market status. However, it is difficult to analyze the effectiveness of these kinds of policies using an empirical approach. Consequently, a comprehensive and dynamic method is necessary for analyzing the effects of policies. This paper, therefore, develops an integrated and dynamic model for analyzing policy impacts. Using this model, the validity of mortgage-lending policies is assessed, and the interplay between various factors (including mortgage loans, housing prices, and demand) is examined. The model is also used to analyze unnoticed side effects in the real estate and financial markets. The dynamic analysis in this research can be applied not only to policy implication, but also to other dynamic fields such as project management, financial planning and demand analysis.