Essays on demands and attributes in property markets of Republic of Korea

Abstract

The three chapters in this dissertation paper tackle the questions of how demands for various properties respond to the changes of attributes of properties in the market. Though all three theses are related to the topics related to the real estate market, the objects of study are different. While the first and the second papers deal with markets of residential and commercial properties, the third one inquires the mechanism as to how supplying urban-use lands are determined. In the first chapter, the value for safe access to schools is estimated in the residential apartment complexes. It is well known that proximity to schools has distinct values in the housing market. Previous research finds that there are solid correlations between the academic performance of schools and housing prices. However, this study contributes to the literature by estimating the pure value of safety concerns of parents in housing prices. While most of the previous research has focused on the value of educational quality of schools or the value of time-saving on the way to schools with hedonic pricing models, this study finds the value of safe access to schools in housing price determination for the first time with similar statistical methods. Addressing endogeneity, which is prevailing in the estimations of school effects, is possible with the unique circumstances of the target area, Sejong city in the Republic of Korea, which was designed and built by neutral public urban planners to have balanced accessibility to elementary schools. However, the results are not limited to the city but can be generalized to the other cities with similar settings. The second paper explores reasons why vacancies seem to exist permanently in the commercial property market. Traditionally, academic papers have argued that vacancy level will converge to the natural rate through rent adjustment and the market-clearing. However, other scholars claimed the opposite, rent rigidity, can be true. This chapter is inclined to the latter argument with the data of 31 business districts of Seoul, the capital city of the Republic of Korea. Furthermore, it suggests a new hypothesis that can explain rent rigidity by behaviors of landlords who are likely to maximize total benefits from properties. The hypothesis is that landlords can be reluctant to adjust rents if adjusting behavior can cause the devaluation of their assets. The estimations with priceper-rent ratio (PRR) and state of vacancy of properties support the hypothesis. The third paper estimates political influence on policy-making of land use. Mayors, elected by public votes, have strong wills to satisfy voters for the next election, and, for them, the conversion of land use to more valuable ones can be a good tool for vote purchasing purposes. With local mayoral election data from 2002 to 2014 and land use data of primary municipalities of the Republic of Korea, the author tests the hypothesis that mayors who faced more fierce competition in the last election are more willing to promote developments. However, unlike the prior expectation, strong evidence is not found in the estimations with the entire countries. However, significant statistical correlations are found in the boroughs of metropolitan cities, more densely populated areas. The heterogeneity between the entire sample and the densely populated area seems to be caused by the scarcity of developable lands in the more urbanized municipalities. The argument is supported by the estimation result with the regressions with different quantiles of developable land area per capita.