[Reporter’s Notebook] The Critical Flaw in Claims That "Jeonse Loans Will Decrease Next Year"

Assemblywoman Kim Eunhye Clashes with Policy Chief
The Misconception That "Jeonse Loans Benefit Young People and the Working Class"
Loan-Centered Policies Distort the Market

Most people focused on Kim Yongbeom, the Presidential Office Policy Chief, who struggled to contain his anger. This was in reference to the heated exchange between Chief Kim and Assemblywoman Kim Eunhye of the People Power Party during the National Assembly Steering Committee meeting on the 18th.

I would like to point out the issue raised by Assemblywoman Kim. She criticized the Ministry of Land, Infrastructure and Transport for cutting nearly 4 trillion won from next year’s Didimdol and Butimok loan budgets. She insisted, "Policy loans that allow young people to dream of owning a home must be revived."

This is a fundamentally flawed criticism. It is true that the budget allocated for Didimdol and Butimok loans from the Housing and Urban Fund managed by the Ministry of Land, Infrastructure and Transport will decrease by 3.7557 trillion won, from 14.0572 trillion won to 10.3016 trillion won. This means the amount of government-issued loans will decline.

However, the budget for interest rate subsidies, which indirectly support borrowers by using bank funds, will increase by 132.2 billion won. Interest rate subsidies are a program that covers the gap between policy loan rates and commercial bank loan rates. Because the government supports part of the interest, this creates a leverage effect dozens of times greater. According to simulations by the Ministry, the outstanding balance of Butimok loans utilizing the interest rate subsidy approach is expected to reach around 67 trillion won next year, up from 54 trillion won in the first half of this year.

The argument that policy loans serve as a housing ladder for young people or low-income groups is also incorrect. On an individual or household basis, it may appear that people can use low-interest policy funds to move up to more expensive homes or better living environments in stages.

However, the picture changes when viewed from a societal perspective. Jeonse loans, which began to spread in earnest from 2008, artificially expanded the jeonse market. Due to the nature of policy loans, there is a tendency for funds to flow into multi-family or multi-household units mainly occupied by low-income groups. As tenants gained greater borrowing capacity, landlords raised deposits. As jeonse prices rose in lower-tier housing, apartment jeonse prices also increased with a time lag. The rise in jeonse prices then led to higher home prices overall.

During the Park Geunhye administration, a senior official’s remark, "Buy a house with debt," became widely quoted. This naturally evolved into "Take out loans to secure a jeonse," and signs of instability in the housing market built on debt are now emerging everywhere.

The quality of housing for young people and newlyweds has not improved. According to a recent housing survey, all indicators of housing stability for young people and newlyweds-including homeownership rates, the proportion of households below minimum housing standards, and per capita living space-have declined compared to the previous year. This contrasts with the rise in average figures for the elderly and all households. Loan-centered policies targeting young people and newlyweds, introduced by the government and politicians, have ultimately distorted the market and exacerbated housing insecurity. Instead of expressing anger over his daughter being mentioned, Chief Kim should have calmly addressed these points.