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BOK Working Paper No.2018-32, Estimation of Long-term Housing Demand and Related Housing Construction Investment in North Korea

Economic Research Institute (82-2-759-5647) 2018.10.09 3743

Title : Estimation of Long-term Housing Demand and Related Housing Construction Investment in North Korea

Author : Jooyung Lee(BOK)


<Abstract>


 This paper estimates long-term housing demand and the related housing construction investment in North Korea, to ascertain whether the growth in housing construction investment, which is considered an important part of private economic activity in North Korea, will continue in the future. First, long-term housing demand is estimated based on the Mankiw-Weil model. We then calculate the demographics-driven aggregate housing demand in North Korea, by estimating individuals’ demands for housing using  age-based survey data on North Korean defectors, and applying it in view of the age structure of North Korea’s population. According to these estimates, the pace of increase in demographics-driven housing demand shows a gradual slowdown, from an annual average of 0.6% to 0.9% between 2001 and 2020, to 0.3% between 2021 and 2030. This paper next forecasts housing demand and the scale of housing construction in North Korea based on the assumption that the country will pursue external openness on full scale from 2021, and that this will lead to considerable growth in income. If external openness leads to a declining mortality rate and increases in individual demand, then an additional 0.6%p (for the low growth scenario) to 1.8%p (for the high growth scenario) in the annual rate of growth in total housing demand is likely, compared to the baseline scenario. The related housing construction investment is anticipated to show additional increases of 12.3 million pyeong (1 pyeong ≒ 3.3㎡) (low growth scenario) to 34.1 million pyeong (high growth scenario) in terms of area, and of 28 trillion won (low growth) to 77 trillion won (high growth) in terms of amount during the 10 years from 2021. This suggests that, if North Korea’s efforts to open to the world reach full swing, housing demand is likely to grow significantly and more housing construction investment will be needed than is currently projected.

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