Monthly interest costs for households living in jeonse (a Korean lease system requiring a large lump-sum deposit instead of monthly rent) averaged 211,965 won in the second quarter of this year, up 144.2% from the second quarter of 2019, when the statistics were revised. That is more than double the 66.1% increase for households living in homes they own. Compared with the second quarter of last year, income for jeonse households rose just 3.9%, while their interest costs climbed 18.6%. High interest rates, combined with rising home prices and jeonse deposits, are expected to push tenants' burdens higher. The upper end of rates on new COFIX-linked jeonse loans at KB Kookmin Bank has risen to 5.88% a year. Finding a jeonse home and covering the loan interest are both becoming harder.
A year has passed since the government rolled out its Oct. 15 housing measures, billed as a way to block speculation. Seoul and 12 areas in Gyeonggi Province were designated zones requiring permits for land transactions, with a two-year owner-occupancy requirement, while gap investment — buying a home while a tenant's jeonse deposit covers most of the price — was blocked and lending was tightened. But the package produced a side effect, worsening the squeeze in the jeonse and monthly rent markets. In the second week of October, jeonse prices for Seoul apartments rose 0.18% from the previous week, bringing the cumulative gain this year to 8.55%. As of the 13th, jeonse listings were down 15.8% from a year earlier. Driven out by surging jeonse and monthly rents, tenants are being pushed into "survival purchases," stretching their finances to borrow heavily and buy a home. Regulation tilted toward curbing demand has shrunk the supply of rental housing, while housing insecurity has stoked buying demand — a vicious cycle.
Demand-side curbs that ignore supply conditions have shown their limits in stabilizing prices while magnifying side effects. The government chants "supply, no questions asked," but even with more construction starts, it takes time before people can move in. Until the effects of expanded supply appear, a path must be opened for existing homes to reach the sale and rental markets. Easing rules could stir home prices, but the side effects of clinging to them must also be faced squarely. If jeonse deposits and interest burdens lead to overstretched, debt-funded purchases, household debt risks also grow. The government should push ahead with supply measures for the greater Seoul area while also phasing in revisions to the land transaction permit system and to lending and tax rules. Repayment capacity should be assessed, but the housing mobility of owner-occupier buyers should not be excessively restricted. The policy stance of judging the purpose of homeownership by whether the owner lives there must also change. Rules meant to block speculation must not end up only raising housing costs for tenants who do not own a home.