[Insight & Opinion] The 3+3+3 Leasehold Law: When Good Intentions Strangle the Market

The National Assembly has proposed a bill to expand the current 2+2-year lease system to a 3+3+3-year framework. The intention is to strengthen residential stability for tenants and reduce frequent relocations. However, well-intentioned protections do not always yield positive outcomes. Since the introduction of the contract renewal request right in 2020, the market has been shaken by unpredictability, resulting in a decrease in rental housing supply and a surge in rental prices. Proposing to further extend the lease period before the aftermath of these changes has even subsided is likely to further erode trust in the market.

The main purpose of the contract renewal request right is to enhance tenants' residential stability. However, it also brings side effects such as infringement on landlords' property rights, a decrease in housing supply, and rising rents. Of course, it is difficult to judge the success or failure of the system from only one perspective. The housing market is influenced by a complex mix of factors, including economic conditions, interest rates, supply policies, and demographic structure. Nevertheless, cases from around the world warn that excessive regulation can distort the market.

In Stockholm, Sweden, strict rent controls have ensured tenant stability, but at the cost of chronic housing shortages. As rents remained below market rates, new supply dwindled, and a black market emerged where people wait decades for rental housing. The United Kingdom once implemented the 'Fair Rent' system, but as rental income fell, landlords exited the market, causing a sharp drop in housing supply. This led to the deregulation of rents in 1989. A similar situation occurred in Berlin, Germany, where a five-year rent freeze was introduced in 2020. New contracts declined and market turmoil increased, prompting the Constitutional Court to rule the measure unconstitutional in 2021.

In 2020, South Korea introduced the contract renewal request right and caps on rent increases to strengthen tenant protections, but this resulted in a decrease in the supply of jeonse (lump-sum deposit leases) and a steep rise in prices. The Constitutional Court ruled the system constitutional in 2024, but legal legitimacy does not necessarily equate to economic validity. The market has already paid a high price to absorb the shock of the system. If the 3+3+3 system is implemented, the impact will be even greater.

First, guaranteeing nine years of residence excessively restricts landlords' property rights. If a landlord intends to sell the property but the tenant exercises the contract renewal right, it can create significant difficulties in selling the home for a prolonged period.

Second, landlords may set higher initial rents to hedge against the uncertainty of long-term contracts. As a result, only some tenants benefit, while new tenants are forced to bear higher rents.

Third, if multi-homeowners exit the rental market and supply decreases, shortages in both jeonse and monthly rentals will worsen. Many multi-homeowners will give up their registration as rental business operators or withdraw from the market altogether. As the rental market loses profitability and flexibility, it will increasingly become a market that landlords avoid.

Ultimately, the key issue is not the 'length of the period' but 'market trust.' For tenants to live stably, landlords must be incentivized to continue supplying housing. However, the 3+3+3 system directly undermines those incentives. If a well-intentioned policy fails to persuade market participants, it will only drive them to avoid the market or circumvent the law. If the government truly seeks tenant stability, it should focus on designing incentive structures rather than simply extending lease periods. Providing tax benefits to landlords offering long-term rentals and expanding rent subsidies or public housing for low-income tenants would offer more meaningful stability. The market should be guided by trust, not controlled by law. The perception that the government is trying to manipulate the market is extremely dangerous.

Behind the illusion of stability promised by the '3+3+3' system lie shrinking supply, soaring prices, and growing market fatigue. We must remember that the answer to residential stability lies not in extending lease periods, but in restoring balance.

Won-Kyung Cho, Professor at UNIST and Director of the Global Industry-Academia Cooperation Center