Stop anti-market policies
The author is a business news editor of the JoongAng Ilbo.
A policy executed despite market warnings has dealt a devastating blow to the real estate market. The three laws designed to enhance housing rental rights for tenants have been in force for nearly half a year. Housing and rent prices have shot up instead of coming down during the period. According to data from KB Kookmin Bank, jeonse (a long-term lump-sum deposit lease) prices for apartments in Seoul on average rise 10.8 percent in the second half of last year, the biggest half-year jump since the bank started tracking housing prices in 1986.
Six months ago, the ruling Democratic Party (DP) and government pushed ahead with the three real estate bills after bypassing normal legislation procedures. In just two days, the bill was submitted to the Legislation and Judiciary Committee and the DP commanding a supermajority in the legislature rubber-stamped bills. Laws that require close examination and debate were steamrolled through as if it had been a military operation. Rep. Yun Hee-suk of the main opposition People Power Party (PPP) vainly attempted a filibuster by arguing laws that can influence the lives of 10 million people in Seoul require deep study on every possible side effects.
On July 30 last year, the three bills were overwhelmingly approved by DP lawmakers in a session boycotted by the PPP. Were they all unaware of the potential side effects or did they fear punishment from the party leadership when they blindly cast their vote of disapproval?
The government and DP pleaded for patience during the transition period. But rent market remains unstable for six months. The Construction & Economy Research Institute of Korea projects rent prices to continue to soar throughout this year. The institute’s research fellow Kim Sung-hwan pointed out that new tenants’ accessibility to the rent market has only worsened. Those looking for rents either on a long-term or monthly basis cannot find apartments. The sudden debt-financed housing buying spree among those in their 30s was triggered by a consequential dearth of rental openings.
The keystones to the three laws are the tenant’s right to extend their lease and a government-enforced cap on annual rent rises. If the tenant in two-year jeonse lease wish to stay longer, they can do so for another two years, whether the landlord likes it or not. And when lease is renewed, the rent cannot go up more than 5 percent. The design in theory should help tenants. But there is a political catch. The new laws have entirely upset the unique mechanism the Korean rent market has run on for more than 20 years. A landlord is stuck with the same tenant for four years even if they do not get along. A landlord therefore would be pickier in accepting a new tenant and demand the highest possible rent.
As a result, some landlords would have to pay incentives to persuade the tenant to leave, which had been the case even for Deputy Prime Minister Hong Nam-ki who’s responsible for the bills. Are existing tenants safe after another two years? They will have to find money to afford much higher rent, or hunt for a cheaper place to live elsewhere.
If flaws are found, they should be fixed before it’s too late. If the three controversial laws cannot be scrapped, they should at least be amended. But no one is making the suggestion as President Moon Jae-in remains oblivious to the acute problems. During a New Year’s press conference, Moon merely mentioned there could be worries about finding rentals during the spring moving season. Proponents of the new laws — former Land Minister Kim Hyun-mee and Justice Minister Choo Mi-ae, for instance — have been replaced. New Land Minister Byun Chang-heum had called for even bolder tenant protection by arguing for a six-year lease guarantee from the start. Even if his position has eased somewhat over the years, he won’t be willing to change the laws. There must be an end to the anti-market policies that only make the lives of ordinary citizens more difficult.