[In-Depth Look] Jeonse Culture in South Korea: To Preserve or Not to Preserve

Jin Mi-yoon, Head of LH Housing Stability Research Center

What was once taken for granted has become a life mission. Marriage, childbirth, and jeonse (key money deposit lease) might be examples of this. Meeting a partner at the right time, starting a family, and having children used to be natural life events. Most middle-class housing paths involved starting a household in a small three-room apartment and gradually expanding to own a home. Eighty percent of households renting had jeonse as their first home. Even if three families lived under one roof, living on jeonse meant there was hope for tomorrow. Jeonse was taken for granted and served as a smart lump sum of money, an important asset when purchasing a home. It functioned as a housing ladder, which was the positive role of jeonse.

However, this formula held true only until before the Asian financial crisis. From the early 2000s, rising house prices pushed up jeonse prices, leading to a jeonse crisis triggered by reconstruction projects. Right after the global financial crisis, low interest rates caused a jeonse wave. As the monthly rent system began to become visible, from around 2010, monthly rents outnumbered jeonse contracts. Due to the shortage of jeonse, prices kept rising relentlessly, approaching house prices. Taking advantage of this, gap investment, another face of jeonse, emerged. This speculative investment involved buying a house with jeonse covering 10-20% of the price, then either raising the jeonse deposit when the contract expired or profiting from the increase in house prices.

Looking at the roughly 100-year history of jeonse, the first 80 years mostly had positive functions, while the last 20 years have been dominated by negative effects. Jeonse periodically walked a tightrope with house price curves, increasing price volatility in the housing market and fueling gap investment. Jeonse deposits reaching hundreds of millions of won have become a means of wealth inheritance through gifts, deepening social inequality. The burden jeonse places on our society is now excessive. Half of the 1,637 trillion won in household debt has been caused by housing. Over the past decade, the average annual household income has increased by less than 10 million won, while house prices and jeonse prices have risen by over 100 million won, translating directly into debt.

What is the root cause of the jeonse problem? It is not limited to a specific administration or point in time. While timely government responses or policy mistakes are not entirely unrelated, they are not the essence of the issue. Blaming only real estate regulations or low interest rates seems to exaggerate the problem. Jeonse cannot be interpreted solely through market economic logic. It is a lifestyle and an emotional product of residential culture. It is a Korean-style and universal form of housing welfare. People want to hold onto it and feel deeply disappointed if they lose it. Saying "What's wrong with monthly rent?" can be hurtful. Living on jeonse rather than monthly rent is also a matter of self-esteem, as it represents a middle status in housing.

Now is the time for decisive action. Since the decline of jeonse is an unstoppable trend, the question is whether to surrender to the market or, recognizing that the essence of the jeonse crisis lies in today's overly commercialized housing reality, for the government to actively uphold the public interest of housing as a social basic right. The jeonse market has failed. However, this should not lead to government failure. Blaming the government, policies, or the market only fuels conflict and makes finding solutions difficult. If we want to preserve the jeonse culture, we must consider whether the commercialized sector can be absorbed into the public sector, how to supply public jeonse housing if needed, and how to fulfill the dream of homeownership that lies behind the strong preference for jeonse.

The current jeonse crisis did not arise suddenly or rapidly. It has been slowly progressing over a long period and will continue as long as real estate capitalism remains embedded in our society. To prevent further confusion and break this cycle, determined policy efforts and bold, courageous decisions are necessary. We hope for a Korea where cultural logic triumphs over economic logic.

Jin Mi-yoon, Director of LH Housing Stability Research Center