Micro-Analysis of Price Spillover Effect among Regional Housing Submarkets in Korea: Evidence from the Seoul Metropolitan Area

Abstract

This study examined the price spillover effect of housing submarkets in cities in the Seoul metropolitan area in South Korea by using the Granger causality test and vector autoregressive model (VAR). We found that housing prices showed a higher spillover effect within regions with similar housing market characteristics. Additionally, the spatial spillover of housing prices revealed a difference between sales price and jeonse price. The spillover of jeonse price was characterized by mutual influence among neighboring cities, while that of sales price was characterized by the influence being transferred in one direction hierarchically. Furthermore, the effects of housing price indicated a slight difference between sales price and jeonse price. Although jeonse price was mainly affected by a neighboring area (geographic boundary), sales price was more influenced by the city with the highest housing prices. Lastly, the housing price spillover tended to be expansive around the city with the highest price. These results suggest that housing price policies targeting specific regions or areas in Korea must be differentiated according to the type of occupancy (jeonse or sales), and it is essential to consider the externalities when promoting policies in the housing market wherein externalities may be significant.