As jeonse prices in Seoul kept rising 72 weeks in a row, the government on Thursday unveiled a package of measures with a focus on increasing the supply of public rental housing units. Jeonse is a Korean-style real estate lease where tenants pay a lump-sum deposit to landlords and retrieve it when the contract ends.
The government will supply 114,000 public rental housing units across the country over the next two years. It will purchase not only houses to rent out, but also hotels, commercial buildings, and “officetels,” remodel them into studio apartments and lease them. Officetels are buildings used for both commercial and residential purposes.
Most of the houses that the government plans to purchase for public rental are multiplex flats. This policy has limitations, however, in satisfying market demand. In Seoul, jeonse prices rose the sharpest this year for those apartments whose exclusive use area ranges from 60 to 85 square meters. But the area of multiplexes the government seeks to secure for rental is less than 60 square meters.
Hotel rooms-turned-studios may be suitable for unmarried young people who want to live alone, but not for families of three or four. Also, hotel rooms are built for lodging or business purposes, while studio apartments are residential spaces for one or two persons. It is questionable if hotel rooms can be renovated into livable studios and also if the surroundings of hotels are proper for residential purpose.
At the center of the jeonse problem is the shortage of apartments available for jeonse to small families, and the government is beating around the bush.
The government pays little attention to the private sector increasing supply. Instead, it seeks to utilize public rental houses as if they are a panacea. Public rental housing accounts for just 8 percent of the nation’s home leasing market. The private sector accounts for 92 percent of the market. It would be hard to solve jeonse problems if the sector is not reinvigorated. The government is ignorant to the market reality.
It diagnosed jeonse problems incorrectly. Minister of Land, Infrastructure and Transport Kim Hyun-mee cited low interest rates and an increasing number of one-person households.
Supply of homes for jeonse did not drop sharply because tenants borrowed money to rent pricier houses amid low interest rates.
Side effects of anti-market policies made homes for jeonse scarce suddenly. The jeonse market was comparatively stable before the government poured out all sorts of regulations.
In a bid to curb leveraged purchase of apartments, the government required landlords to reside in their apartments to maintain their ownership of the units after they are reconstructed. This made landlords evict tenants and move in themselves, consequently depleting apartments available for jeonse.
The biggest culprit behind the jeonse crisis was the house leasing acts revised by the ruling party and the government under the pretext of protecting tenants from landlords. The revised acts required homeowners to extend a two-year lease once if existing tenants want to live for two more years, unless they move in their houses. As a result, new and existing tenants were driven into competition for decreasing houses for jeonse.
Experts warned of these side effects. They called for the government to respect the market mechanism, and argued that it must not fight the market with excessive regulations and punitive taxes.
But the government and ruling party did not listen. In announcing jeonse measures, the government said, “Sorry.” Still, it shows no intent in changing the course and amending the acts in question. Rather, Minister Kim said that “the quality of public rental houses is rising in step with public expectations.”
Rep. Jin Sun-mee of the ruling Democratic Party of Korea said after looking around a five-story public rental property, “This house does not differ from my home. People should throw out fantasy about apartments.”
She made this remark to advocate the jeonse measures, but she came under criticisms after it was revealed that she lives in a new high-rise apartment building in Seoul. She exposed the double standard of the ruling party. How could people trust those in power if they behave hypocritically?
People already say derisively that if the government announces measures on jeonse next time, they may include remodeling recreational vehicles into studio apartments.
To get the jeonse market back to normal, the government must shed obstinacy and amend the house leasing acts, among others, as soon as possible.
