[11·19 Jeonse Measures] "Lease Laws 2, Precious Agreement" Kim Hyun-mi Unmoved Despite Jeonse Crisis

The Mayor Says "The Two Lease Laws Are the Root Cause of the Jeonse Crisis,"
But It's More Due to Low Interest Rates, Household Fragmentation, and Switching 'Blame, Blame, Blame'

Supply Volume Also Questionable in Effectiveness
The Core Issue Is the Apartment Jeonse Crisis,
Yet Only 26% Nationwide and 6% in Seoul of the Supply Are Apartments

Minister of Land, Infrastructure and Transport Kim Hyun-mi is announcing support measures for housing stability for low-income and middle-class citizens at the government Seoul office briefing room on the 19th. [Image source=Yonhap News]

[Asia Economy Reporter Lee Chun-hee] The government announced measures on the 19th to address the jeonse (long-term lease) market, but it has been criticized for consistently giving positive evaluations such as "social consensus" regarding the Lease 2 Acts, which are the direct cause of the issue.

Kim Hyun-mi, Minister of Land, Infrastructure and Transport, stated at a briefing on the jeonse measures held at the Government Seoul Office that day, "The Lease 3 Acts are a valuable achievement made through social consensus that a house is a 'place where people live,'" and highlighted positive effects such as the increase in renewal rates of jeonse and monthly rent contracts, and the highest number of renewals of public guarantees for jeonse loans throughout the year.

This is a completely opposite evaluation to the market's view that the government's successive sales regulations have reduced private jeonse supply, and that the government and the ruling Democratic Party hastily passed the Lease 2 Acts, including the right to request contract renewal and the cap on jeonse and monthly rent, delivering a fatal blow to the jeonse market.

Earlier, Hong Nam-ki, Deputy Prime Minister and Minister of Economy and Finance, diagnosed the recent instability in the jeonse market at the 10th Real Estate Market Inspection Meeting, stating that it was due to "a temporary overlap of upward pressure caused by policy factors such as the low interest rate trend and the establishment of the Lease 3 Acts, as well as seasonal factors during the autumn moving season, and a significant increase in the number of households and families in 2020." He explained that natural social phenomena and real demand buyers' "switching" are stimulating the market more than policy factors.

Regarding the various side effects caused by the Lease 3 Acts, such as the situation where actual resident buyers cannot move in and Deputy Prime Minister Hong has become a "jeonse refugee" paying consolation money to tenants, the government acknowledged "some conflicts and frictions," but expressed its intention to maintain the policy, saying, "In the long term, once the new system is established, it is expected that tenants will habitually live stably for four years without worrying about rent increases."

On the 19th, when the government announced its 24th real estate policy, a poster criticizing the government's real estate policy was posted at a real estate agency in Songpa-gu, Seoul. Photo by Mun Ho-nam munonam@

Yoon Hee-sook, a member of the People Power Party, strongly criticized on Facebook that "today's announcement is a shocking shift in the roles of the government and the market," and added, "Such a profound change in direction suddenly appeared during the process of managing the jeonse crisis caused by the government's and ruling party's rushed legislation." She called the Lease 3 Acts "the biggest mistake that caused the greatest shock," and pointed out that "restoring government distrust normally requires consistently showing a sincere attitude of awakening to pursue rational policies and carefully rebuilding trust."

Jang Jae-hyun, head of Real Today, also pointed out, "The core of the jeonse crisis is the Lease 3 Acts," and said, "While factors such as the increase in single-person households may have some influence, it is unreasonable to consider the increase in single-person households and low interest rates as bigger factors, since the Lease 3 Acts have increased actual residence by landlords or their families and accelerated the shift to monthly rent, thereby reducing supply."

A view of an apartment complex from Lotte World Tower Seoul Sky in Songpa-gu, Seoul. [Image source=Yonhap News]

Within the industry, doubts are also being raised about the effectiveness of the measures announced that day. Although the current jeonse crisis is mainly occurring in apartments, most of the announced supply is skewed toward multi-family and row houses rather than apartments.

According to the Ministry of Land, Infrastructure and Transport, among the supply announced that day, apartment-type supply consists only of about 800 units out of 28,890 units of construction-type rental housing utilizing existing public rental vacancies and 8,310 units of purchased rental housing. This accounts for about 26.0% of the total announced supply of 114,100 units.

In particular, the proportion of apartments compared to the supply in Seoul is even lower, at only 5.5%. According to the Ministry, the planned supply of construction-type rental housing in Seoul is only 1,952 units, and there are almost no apartment-type units among the 1,091 purchased rental housing units.

Kim Young-han, Director of Housing Policy at the Ministry of Land, Infrastructure and Transport, explained, "There are physical limits to expanding apartment supply in the short term," and added, "The design direction of this policy is to quickly supply high-quality non-apartment housing that meets apartment standards to reduce pressure on apartment market demand."

Yang Ji-young, director of Yang Ji-young R&C Research Institute, pointed out, "The core of the recent jeonse crisis is the shortage of apartment supply," and said, "Jeonse demanders value location factors such as school districts, work, and infrastructure, so multi-family houses tend to be located on the outskirts, and conversions of commercial buildings or hotels also have limitations in terms of living convenience."