[Insight & Opinion] The Conversion of Jeonse to Monthly Rent Accelerates the 'Affordability Crisis'

According to statistics from the Korea Real Estate Board, as of December 8 this year, apartment prices in Seoul have risen by 8.1%, the southeastern region by 14.8%, and Songpa District by 19.8%. Breaking down this upward trend by period, compared to the last week of last year, prices increased by 3.1% in Seoul and 7.2% in the southeastern region as of June 23 this year. After the June 27 regulatory measures, from June 27 to December 8, Seoul saw a further increase of 4.8%, the southeastern region 7.1%, and Songpa District 10.6%. Notably, even after the October 15 policy measures, apartment prices continued to rise by 1.8% in Seoul, 2.7% in the southeastern region, and 4% in Songpa District.

These changes in apartment prices demonstrate that the two rounds of regulatory measures have actually served as catalysts for price increases rather than stabilization. At this point, it would not be an exaggeration to say that these so-called stabilization measures have functioned more as stimulus policies. The reason why housing price stabilization measures have paradoxically boosted prices is that tighter transaction regulations have led to a freeze in transactions. In a situation where housing supply is insufficient, this freeze has not only triggered a flexible increase in housing prices, but has also significantly increased demand for jeonse (lump-sum deposit leases). The resulting shortage in jeonse supply has in turn led to a vicious cycle of rising semi-jeonse and monthly rents. As a result, the proportion of monthly rent transactions in Seoul rose from around 40% in 2020 and 51% in 2022 to 64.5% in the January-September period of this year.

The June 27 loan restrictions reduced the availability of jeonse loans, and the October 15 measures, which expanded the requirement for two years of actual residence when purchasing a home, led to a reduction in available rental properties. According to real estate information provider Asil, the number of jeonse listings in Seoul this year decreased by 23% compared to the beginning of the year. These regulations do not operate in isolation; rather, they distort the market through interconnected mechanisms, ultimately increasing housing costs for those who do not own homes.

Ultimately, the October 15 policy accelerated the "conversion of jeonse to monthly rent." According to KB Real Estate, the monthly rent price index for Seoul apartments rose by 7.15% over the first ten months of this year, marking the highest increase in a decade. In particular, according to court registration statistics, the number of monthly rent contracts reached 476,000 by October this year, a 98.7% increase compared to October 2020. As a result, both "jeonse refugees" and "monthly rent refugees" are being created in large numbers.

Meanwhile, according to a survey by the Korea Real Estate Board, as of October, the average monthly rent for apartments in Seoul had risen by 61% compared to ten years ago and by 30% compared to five years ago, now accounting for 24% of the median income for a family of four. Furthermore, as of October, the average monthly rent for apartments in Seoul was 1.46 million won, and for all housing types including multiplex and multi-family homes, the average was 1.189 million won. This represents 31% of the average monthly wage of 3.815 million won for employees at companies with fewer than 300 workers as of October, according to Ministry of Employment and Labor statistics.

What is particularly noteworthy is that the "affordability crisis" currently drawing attention in the United States is already unfolding as a pressing issue in Korea. In the United States, it is considered an affordability crisis when rent exceeds 30% of income. By this standard, Korea's monthly rental market has already crossed the affordability crisis threshold.

What is even more concerning is the outlook for next year. The official forecast by the Seoul Metropolitan Government for new apartment supply in Seoul next year is 24,000 units, nearly half of this year's 47,000 units, while private sector estimates put it at only about a quarter of this year's supply. Therefore, the problems of housing shortages and rising prices are likely to become even more severe next year. Moreover, given the landlord-favored market structure, if the government raises property holding taxes such as the comprehensive real estate tax, it is inevitable that the tax burden will be passed on to tenants. The government must not continue to repeat policy failures that, by ignoring the housing market ecosystem and relying on short-sighted stabilization measures, only serve to exacerbate the affordability crisis for the public.

Kim Dongwon, Former Visiting Professor at Korea University