Concerns Over the Three Lease Laws Become Reality: "Market Chaos → Sharp Rise in Jeonse and Monthly Rent Prices → Increased Burden on Ordinary People" Vicious Cycle

Korea Economic Research Institute Points Out Side Effects of Lease 3 Laws
Rental Market Turmoil Expected to Continue This Year
"Need to Reconsider Policies Distorting Market Balance"

Photo by Yonhap News

[Asia Economy Reporter Kim Jin-ho] Concerns have been raised about the serious side effects of the Three Lease Laws (Jeonwolse Reporting System, Jeonwolse Rent Cap System, and Contract Renewal Request Right System). Contrary to the legislative intent, the 'Jeonse crisis' has deepened, and with the sharp increase in property taxes such as comprehensive real estate tax, the proportion of monthly rent has also risen, increasing the rental burden on tenants.

The Korea Economic Research Institute (KERI) stated this on the 7th in a report titled "Analysis of the Impact of Property Tax Increase on Housing Rent Increase."

According to the report, over the past two years, the housing lease market has seen a remarkable surge in Jeonse prices and a decrease in Jeonse supply. Jeonse prices in Seoul, which had been stable with an increase rate of less than 3% from 2016 to 2019, recorded double-digit growth starting in 2020, surging by 23.8% over the past two years. Additionally, the proportion of monthly rent has rapidly increased, accelerating the so-called 'monthly rent-ification of Jeonse,' with the monthly rent ratio in Seoul rising by 13.7% over two years.

KERI pointed to the rapid rise in housing prices, the implementation of the Three Lease Laws, and the sharp increase in property taxes as recent factors destabilizing the lease market.

According to the report, the increase in property taxes such as the comprehensive real estate tax has led to an increase of more than 5% in the proportion of monthly rent transactions within lease deals. Similar results were found in additional analyses using not only the property tax rate but also proxy variables for property tax such as the number of news articles related to property tax and the ratio of joint ownership in gifts.

KERI analyzed that the sharp increase in property taxes has been passed on to tenants, increasing their rental burden. The report limited its analysis to variables related to the comprehensive real estate tax, but in reality, the burden of property tax has also significantly increased due to the rise in official property prices, so the impact of property tax increases on the lease market is likely larger and more widespread.

Lee Seung-seok, a senior researcher at KERI, explained, "The increase in property taxes was intended to emphasize negative perceptions of multi-home ownership and to reduce housing demand by lowering housing holding yields, but the result was the opposite," adding, "Housing prices actually showed a steeper upward trend."

He continued, "As a result, in the housing sales market, the new paradigm of owning a single smart home has spread phenomena like 'Yeongkkeul' (borrowing to the max) and 'Debt Investment,' while in the lease market, the '20 billion Jeonse era' has begun, accelerating monthly rent and increasing rental burdens," he pointed out.

KERI forecasted that confusion in the Jeonse market will continue this year as well. With the increase in households giving up on purchasing homes due to soaring housing prices leading to expanded Jeonse demand, the second year of the Three Lease Laws' implementation in the second half of this year is expected to reduce Jeonse supply due to the exercise of contract renewal request rights.

Senior researcher Lee said, "To achieve the government's goal of stabilizing the housing market focused on actual demanders, it is desirable to reconsider the policy of strengthening property taxes that causes confusion and distortion in the housing market, including the lease market," and warned, "It should be remembered that demand suppression policies that artificially distort market balance have invariably failed."

This content was produced with the assistance of AI translation services.