Need to build confidenceThe deposits for jeonse, or lump-sum rental payment usually for two-year residential lease in Korea, averaged 200,320,000 won ($173,362) last month on a nationwide basis, according to KB Kookmin Bank. In Seoul, the average jeonse price hit over 400 million won. Runaway jeonse prices have been choking Koreans’ finances for a long time. The average jeonse prices that have been on the rise for nearly five years, jumped 54.4 percent from an average 129,750,000 won in June 2011. The cost of a lease has exceeded the value of apartments in many areas across the nation and it has reached 80 to 90 percent of the market value of homes in Seoul.
Macroeconomic factors like prolonged low interest and the economic slowdown have fanned rent prices. As bank deposits yield no more than 2 percent a year, homeowners prefer monthly rents over long-term contracts. Tenants defer home purchases as prospects on home value are poor amid demographic changes from low births and aging. Jeonse prices have shot up due to the scarcity in supply and an increasing shift to monthly leases.
Government impotence and shortsightedness has also worsened the problem. The government under President Park Geun-hye resorted to real estate stimuli to boost the economy and achieve growth target. It made it easier for working class people to take out loans from financial institutions, regardless of their affordability. It then encouraged the market shift to monthly rent system even as the fast transformation brought about upsets and disruptions in supply and demand.
The public housing policy was oriented towards monthly supply and demand. “New Stay” apartment leases at affordable rates have been offered by the private sector not the government. The government kept just half of its promise to create 110,000 homes for public rents a year. The crushing defeat by the ruling party in the last legislative election was partly because of public disgruntlement over home insecurity.
People are being pushed further and further to the outskirts of Seoul in search of available or affordable homes. Due to heavy housing costs, consumer debt keeps piling up and spending is depressed. If the government does not see the seriousness of the housing problem, it will not only fail to revive the economy, but also lose public confidence. The government and ruling party must come up with stronger measures to bolster supply.
JoongAng Ilbo, May 7, Page 22