Would Bigger Loans Really Fix Expensive Housing?

Real estate lending is a hard conversation to start.

LTV, DSR, mortgages, household debt. Stack two or three of those words together and you watch the other person's face go flat. If you don't work in finance every day, it stops being your problem and becomes somebody else's.

I ran into this over lunch with a coworker a while back. My explanation kept spinning its wheels, so I tried comparing real estate to a delivery motorcycle. The complicated version got a lot simpler.

You can't do the job without the bike

Say someone is starting out doing food delivery.

The motorcycle isn't a luxury. It's the means of production — no bike, no income.

The bike they need costs 5 million won. They have 1 million.

The other 4 million has to come from somewhere. A loan, an installment plan, whatever. Nothing wrong with that.

This is one of the things finance is for. The money isn't there today, but the delivery income will be, so you pull part of that future income into the present.

Which raises a question.

How much should you actually lend this person?

Do you lend 4 million just because the bike costs 5?

No.

Sane lending starts somewhere else: how much does this person earn per month delivering, what's left after living expenses, can they keep paying for years without wobbling.

The borrower's capacity to repay comes before the price of the thing.

Now the bike costs 10 million

This is where it gets interesting.

More people want to deliver, the supply of bikes doesn't keep up, and the price goes from 5 million to 10 million. Most delivery riders still have somewhere between 1 and 2 million in their pocket.

So you start hearing this:

"Bikes are essential for making a living, and ordinary people can't afford one." "Loosen the lending rules — let them borrow 8 or 9 million."

It sounds reasonable. People who couldn't buy a bike can now buy one.

Add one condition.

The number of bikes doesn't change.

There are 100 bikes and 200 buyers. And all 200 get approved for 9 million.

What happens?

Nobody ends up with more bikes. What they end up with is the ability to pay more for the same bike.

The seller now has no reason to cut the price. If anything, they raise it.

Which means you need a bigger loan again

The bike is 12 million now.

Cue the same line.

"Bikes cost 12 million these days — how is anyone supposed to buy one with a 9 million loan?"

So the cap goes to 11 million. Supply is still 100 bikes. All that moves is the price people pay.

You get a strange loop.

Price rises → lending expands → purchasing power rises → bidding competition → price rises → lending expands again

The money you injected to solve the problem gets absorbed straight into the price. I've watched the same thing happen when a system buckles under load: you add servers, and the traffic fills the new headroom until the dashboards sit right back where they started.

Swap the motorcycle for a house

That's the angle I look at mortgage lending from.

People need somewhere to live. That's not optional.

So I get the argument that housing is a necessity and people who are short on cash should be able to borrow. It's a fair point. I'm not saying mortgages are the problem.

What bothers me is a different thing. When house prices climb much faster than incomes, and you keep filling that gap with credit — how long does that actually run?

Say people can carry about 500 million won given their income and assets. The house costs 1 billion.

There are a lot of possible answers. Build more housing. Extend transit so more areas become livable. Fix the rental market. Raise incomes. Let prices correct.

There's one answer that's easier than all of them.

Lend them another 500 million.

It looks solved. They can buy the 1 billion won house now.

But handing a lot of people an extra 500 million each doesn't produce a single additional home.

It produces the ability to pay 1 billion.

Lending isn't a policy that makes housing cheaper

This is the part I care about.

Expanding credit doesn't lower the price of a house. It manufactures the purchasing power to buy an expensive one.

Obviously real prices aren't set this cleanly. Rates, supply, local demand, demographics, income, taxes, redevelopment, land prices, expectations — all moving at once. And no, more lending doesn't push prices up by the same percentage.

But when supply is locked and credit opens up wide, the amount people can bid goes up, and that's one of the things holding prices where they are. Worth sitting with for a minute.

A house isn't a motorcycle

The analogy has limits.

A motorcycle usually loses value over time. A house sits on land in a location, so it can appreciate. It works as collateral. It can produce rental income. An installment plan on a bike and a mortgage are not the same instrument.

But I think that difference is exactly what makes the housing version worse.

Prices rise, so collateral values rise. Higher collateral values give lenders room to lend more. That money goes back into the housing market, and purchasing power goes up.

Prices rise → collateral values rise → credit expands → purchasing power rises → prices rise again

That's a feedback loop.

So I look at DSR

The question finance should be asking is simple.

Not "what is this house worth" but "what can this person actually repay."

Same as not lending a delivery rider 10 million just because he wants a 10 million won bike, and instead sizing the loan against the cash flow the delivery work generates.

Housing is no different. Whether the collateral is 1 billion or 1.5 billion, looking at the borrower's income and capacity to repay alongside it is better for the stability of the system than lending against the appraisal alone.

So when I first came across DSR as a concept — as opposed to LTV — it struck me as pretty sensible. It says look at cash flow, not asset prices.

I'll be honest: when I see a headline about lending caps going up, my first reaction is a little jolt of relief. Two daughters, and I run the housing math every month. Then I open the calculator and the feeling drains out fast, because I know the price I can bid just went up by exactly as much as the cap did.

The question starts here

I don't think we should get rid of lending.

The economy needs credit. Letting people buy an asset now against a stable future income is part of what finance is for.

But this question is worth asking once.

If houses are too expensive for people to buy, does the answer have to keep being "lend them more money"?

Lending a delivery rider 4 million because he can't afford a 5 million won bike makes sense to me. But when the bike hits 10 million, and then 15, is "it's essential for making a living, raise the cap again" really the answer?

A loan doesn't make an expensive house cheap. It pulls future income into the present so you can buy the expensive house anyway.

And how much of that income you pull forward should start from what the person can carry — not from what the house costs.

That's where I stopped at lunch that day. He asked me what the answer is, then. I said I don't know. I still don't.