Policy-Driven Boom and Bustin the Housing Market: Evidence from Mongolia

Asian Development Review

Gan-Ochir Doojav and Davaasukh Damdinjav

C53, D14, E32, E51, G21

booms and busts, house prices, Mongolia, mortgage interest rate subsidy

This paper examines the effects of a mortgage interest rate subsidy on boomsand busts in the housing market by analyzing the Housing Mortgage programin Mongolia. Wefind that the most recent housing boom in Mongolia occurredfrom the second quarter (Q2) of 2012 tofirst quarter (Q1) of 2014, and thatthe subsequent housing bust lasted 4 years. Both house-specific factors andmacroeconomic variables had a significant influence on housing pricedynamics. Mortgage interest rate semielasticity and real household incomeelasticity were estimated as
3 and 1.4, respectively. Dynamic analysis of theestimated vector error correction models suggests that the country’s policyintervention in the mortgage market—introducing an interest rate subsidy onmortgage loans for residential properties of up to 80 square meters—drove therecent housing boom in Mongolia.