Without jeonse, many Koreans might never have owned homes

Kim Dong-ho

The author is an editorial writer at the JoongAng Ilbo.

Jeonse, Korea's unique lump-sum rental deposit system, has long served as a ladder to homeownership. People save their salaries to secure a jeonse apartment, accumulate more savings to buy a home and eventually move into larger properties as their finances improve. This has been a common path to building wealth. Few people without wealthy parents begin adulthood as homeowners. Many have climbed into the middle class through jeonse without inheriting substantial assets. How many homeowners today have not followed this path?

Under jeonse, tenants pay a large refundable deposit instead of monthly rent. Landlords return the deposit when the lease expires, generally after two years. Tenants can save what they would otherwise spend on rent and eventually purchase homes. The system combines housing with savings, while landlords use deposits to finance property ownership. It emerged organically as a distinctive feature of Korea's housing market.

Jeonse certainly has drawbacks. Its greatest danger is speculation. Investors can purchase properties using tenants' deposits, a practice known as gap investment, and profit from rising prices. Tenants also sacrifice potential returns on their deposits and risk losing them if property values collapse. Jeonse fraud can devastate families. But abolishing jeonse because of speculation and fraud would be like banning automobiles because accidents occur. The answer is to eliminate abuses, not destroy the entire system.

The fundamental problem today is insufficient housing supply. Seoul apartment prices have risen for 89 consecutive weeks, the longest streak on record. With construction lagging, government pressure on multiple homeowners and tighter owner-occupancy requirements have spread price increases to Seoul's outskirts. Buyers are flocking to apartments priced below 1.5 billion won ($1.1 million), driving up prices in working-class neighborhoods in northeastern and southwestern Seoul. Jeonse shortages are worsening. Some experts even anticipate 100 consecutive weeks of rising apartment prices. Measures targeting expensive Gangnam properties have intensified housing insecurity elsewhere.

The figures confirm tenants' difficulties. Through the first week of October, Seoul apartment jeonse prices had risen 8.35 percent this year, exceeding the 8.31 percent increase in purchase prices. Jeonse listings are dwindling while monthly rents climb. Roughly half of Seoul households are tenants. Without jeonse, many could be priced out of the capital altogether.

President Lee Jae Myung has predicted that jeonse will disappear. He has also described falling prices in Gangnam and rising prices elsewhere as a "flattening" of housing prices. But what he calls flattening may simply be a balloon effect, with demand shifting from restricted areas to cheaper neighborhoods. Treating jeonse's disappearance as inevitable threatens the housing ladder. Stronger owner-occupancy requirements further reduce rental availability.

The experience of Land Minister Hong Ji-seon illustrates the predicament facing ordinary Koreans. At his Sept. 16 confirmation hearing, controversy erupted over his purchase last year of a Seoul apartment worth 1 billion won after five jeonse contracts. He had borrowed heavily from financial institutions and his mother-in-law, prompting criticism of his debt-financed purchase.

Hong explained that he had lived in jeonse housing for approximately 20 years and bought the apartment for his own residence because moving every two to four years had become exhausting. He therefore understands the hardships of renting and the frustration of being unable to own a home. Yet ordinary families without substantial savings or parental assistance cannot contemplate such heavily leveraged purchases.

Nevertheless, Hong recently described the disappearance of jeonse as a "megatrend" during a parliamentary audit, citing growing numbers of single-person households and the aftermath of jeonse fraud. Having experienced the difficulties himself until just last year, shouldn't he be considering ways to increase jeonse supply rather than accepting its disappearance?

As jeonse contracts decline, monthly rents are rising. Average apartment rent in Seoul has surpassed 1.64 million won a month. Unlike refundable jeonse deposits, rent payments are permanently lost. The fewer jeonse homes available, the less young people and newlyweds can save toward homeownership. Older generations accumulated wealth through jeonse. Should they now pull away the ladder from their successors?

A mistaken diagnosis inevitably produces misguided remedies. The government must move beyond regulations focused on restricting ownership and occupancy. Since finding new development sites in Seoul is difficult, it should ease restrictions on redevelopment and reconstruction to expand supply.

Pressuring the property market will not automatically redirect money into stocks, which remain risky assets. Higher interest rates may moderate housing price increases, but regulations alone cannot control them.

For many families, jeonse has offered something conventional monthly rentals cannot: a chance to maintain stable housing while preparing for ownership. Its disappearance would not merely change how Koreans rent homes. It could fundamentally alter how younger households accumulate wealth, widening the divide between those who inherit property and those who must build assets themselves.

Government policy should preserve jeonse as a viable path to homeownership for younger generations. Otherwise, countless Koreans may lose the very opportunity that enabled their parents to become homeowners.