When real estate and debt rise together, it’s time to tap the brakes
Published: 02 Jul. 2025, 00:01
Audio report: written by reporters, read by AI
Park Sun-Young
The author is a professor of economics at Dongguk University.
One of the major contributions of Ben Bernanke — former Federal Reserve chair and Nobel laureate in economics — is the theory of the “financial accelerator.” The idea explains how asset prices and credit availability interact to amplify economic fluctuations. When real estate prices rise, the value of collateral increases, enabling households and businesses to borrow more. The new credit, in turn, fuels further demand for property, reinforcing the price climb. It becomes a feedback loop, an “accelerator” of upward momentum.
![As apartment prices in Seoul’s Gangnam District and surrounding areas have surged this year, the government announced strong lending regulations on June 27, including new caps on housing loans. The photo shows apartment complexes in Seoul as seen from Namhansanseong in Gwangju, Gyeonggi, in March. [YONHAP]](https://koreajoongangdaily.joins.com/data/photo/2025/07/02/620bcd03-ee2a-4da8-9e9a-9af96900826e.jpg)
In Korea, the disconnect between sluggish real growth and surging asset prices offers a striking example. Despite projections that the Korean economy will grow just 0.8 percent this year — excluding periods of external shock like the financial crisis or the pandemic — apartment prices in the fourth week of June recorded the largest weekly jump in nearly seven years. This suggests the asset market is being driven not by fundamentals but by a surge in credit.
Yale economist and fellow Nobel laureate Robert J. Shiller describes similar patterns in his book "Irrational Exuberance" (2000). He explains how optimistic expectations and herd behavior can push asset prices well beyond their intrinsic value. When the narrative “prices will keep rising” becomes widespread, it fuels self-fulfilling expectations and collective action. In the housing market, this often manifests as anxiety that “if I don’t buy now, I never will,” triggering panic buying.
![A passerby checks apartment listings near Jamsil apartment complexes at a real estate agency in Songpa District, southern Seoul, on June 29. [NEWS1]](https://koreajoongangdaily.joins.com/data/photo/2025/07/02/bfbbd062-8c4a-4b6a-b00b-525b44a09576.jpg)
When financial leverage meets irrational exuberance, markets can overheat rapidly and uncontrollably. Seoul’s real estate market today is a textbook case of this dangerous coupling. But this recurring overheating is no accident. Korea's housing market is structurally prone to speculative booms due to three institutional factors.
First is the unique jeonse lump-sum rental system. In Korea, lump-sum rental deposits are often financed through loans backed by government guarantees. This mechanism has become central to so-called "gap investing," where buyers use borrowed jeonse deposits to acquire additional properties. According to the Korea Research Institute for Human Settlements, a 1 percent increase in gap investing raises home prices in the capital region by 0.18 percent. Similarly, a 1 percent increase in jeonse loan guarantees lifts rental prices by 0.18 percentage points, while a 1 percent rise in jeonse lending boosts purchase prices by 0.37 percentage points.
While such loans may ease rent burdens for tenants in the short term, they also inflate both jeonse and sales prices and enable more speculative buying. What begins as a housing affordability policy ends up raising the cost of housing, creating a paradox where beneficiaries ultimately pay more — an illusion of help that fails to deliver lasting stability.
Second is Korea’s extreme population concentration in the capital region. Nearly half the country’s population resides in or around Seoul. In contrast, only 28 percent of Japan's population lives in the Tokyo area, and just 18 percent in greater Paris. Meanwhile, Korea faces one of the world’s fastest rates of regional depopulation. As of 2024, about 43 percent of local governments are considered at risk of extinction, and the country has seen more deaths than births each year since 2020. With rural areas shrinking, there's no counterbalance to ease the capital region’s housing pressure. Investment, sentiment and population continue to flow into Seoul unchecked.
Third, Korea’s immature pension system and insufficient public safety net intensify anxiety about old age. With a short average job tenure and wide postretirement income gaps, many Koreans feel compelled to secure their financial future on their own. As a result, real estate becomes less about housing and more about survival. This financial insecurity has evolved into a deeply ingrained mindset of speculative investing, often bordering on obsession.
Social media and online communities now amplify this phenomenon. In June 2025, Korea Securities Depository data showed that the most purchased overseas stock among Korean individual investors was Circle, a Nasdaq-listed stablecoin issuer, drawing 810.1 billion won in net purchases in just one month. As with the secondary battery craze of 2023, the influence of online forums in shaping investment decisions highlights how collective anxiety and speculative behavior now extend beyond real estate.
![Senior citizens wait in line for free meals at Tapgol Park in Jongno District, central Seoul, on May 12. [NEWS1]](https://koreajoongangdaily.joins.com/data/photo/2025/07/02/c9f846cf-f133-4228-9b31-b5790c19ee05.jpg)
These structural issues did not emerge overnight, and they cannot be corrected with a single policy tweak. What’s needed now is a principled approach that prioritizes long-term sustainability for future generations. The household lending regulations announced on June 27 may feel like a sudden and harsh brake, but they are a necessary intervention to convert growing financial imbalance into a manageable risk.
Still, there is regret that more decisive action was not taken earlier. Experts have long warned about the structural vulnerabilities of jeonse loans, government guarantees and gap investing. Had their concerns been heeded sooner, this abrupt deceleration might have been avoided.
Translated from the JoongAng Ilbo using generative AI and edited by Korea JoongAng Daily staff.
The author is a professor of economics at Dongguk University.
One of the major contributions of Ben Bernanke — former Federal Reserve chair and Nobel laureate in economics — is the theory of the “financial accelerator.” The idea explains how asset prices and credit availability interact to amplify economic fluctuations. When real estate prices rise, the value of collateral increases, enabling households and businesses to borrow more. The new credit, in turn, fuels further demand for property, reinforcing the price climb. It becomes a feedback loop, an “accelerator” of upward momentum.
As apartment prices in Seoul’s Gangnam District and surrounding areas have surged this year, the government announced strong lending regulations on June 27, including new caps on housing loans. The photo shows apartment complexes in Seoul as seen from Namhansanseong in Gwangju, Gyeonggi, in March. [YONHAP]
In Korea, the disconnect between sluggish real growth and surging asset prices offers a striking example. Despite projections that the Korean economy will grow just 0.8 percent this year — excluding periods of external shock like the financial crisis or the pandemic — apartment prices in the fourth week of June recorded the largest weekly jump in nearly seven years. This suggests the asset market is being driven not by fundamentals but by a surge in credit.
Yale economist and fellow Nobel laureate Robert J. Shiller describes similar patterns in his book "Irrational Exuberance" (2000). He explains how optimistic expectations and herd behavior can push asset prices well beyond their intrinsic value. When the narrative “prices will keep rising” becomes widespread, it fuels self-fulfilling expectations and collective action. In the housing market, this often manifests as anxiety that “if I don’t buy now, I never will,” triggering panic buying.
A passerby checks apartment listings near Jamsil apartment complexes at a real estate agency in Songpa District, southern Seoul, on June 29. [NEWS1]
When financial leverage meets irrational exuberance, markets can overheat rapidly and uncontrollably. Seoul’s real estate market today is a textbook case of this dangerous coupling. But this recurring overheating is no accident. Korea's housing market is structurally prone to speculative booms due to three institutional factors.
First is the unique jeonse lump-sum rental system. In Korea, lump-sum rental deposits are often financed through loans backed by government guarantees. This mechanism has become central to so-called "gap investing," where buyers use borrowed jeonse deposits to acquire additional properties. According to the Korea Research Institute for Human Settlements, a 1 percent increase in gap investing raises home prices in the capital region by 0.18 percent. Similarly, a 1 percent increase in jeonse loan guarantees lifts rental prices by 0.18 percentage points, while a 1 percent rise in jeonse lending boosts purchase prices by 0.37 percentage points.
While such loans may ease rent burdens for tenants in the short term, they also inflate both jeonse and sales prices and enable more speculative buying. What begins as a housing affordability policy ends up raising the cost of housing, creating a paradox where beneficiaries ultimately pay more — an illusion of help that fails to deliver lasting stability.
Second is Korea’s extreme population concentration in the capital region. Nearly half the country’s population resides in or around Seoul. In contrast, only 28 percent of Japan's population lives in the Tokyo area, and just 18 percent in greater Paris. Meanwhile, Korea faces one of the world’s fastest rates of regional depopulation. As of 2024, about 43 percent of local governments are considered at risk of extinction, and the country has seen more deaths than births each year since 2020. With rural areas shrinking, there's no counterbalance to ease the capital region’s housing pressure. Investment, sentiment and population continue to flow into Seoul unchecked.
Third, Korea’s immature pension system and insufficient public safety net intensify anxiety about old age. With a short average job tenure and wide postretirement income gaps, many Koreans feel compelled to secure their financial future on their own. As a result, real estate becomes less about housing and more about survival. This financial insecurity has evolved into a deeply ingrained mindset of speculative investing, often bordering on obsession.
Social media and online communities now amplify this phenomenon. In June 2025, Korea Securities Depository data showed that the most purchased overseas stock among Korean individual investors was Circle, a Nasdaq-listed stablecoin issuer, drawing 810.1 billion won in net purchases in just one month. As with the secondary battery craze of 2023, the influence of online forums in shaping investment decisions highlights how collective anxiety and speculative behavior now extend beyond real estate.
Senior citizens wait in line for free meals at Tapgol Park in Jongno District, central Seoul, on May 12. [NEWS1]
These structural issues did not emerge overnight, and they cannot be corrected with a single policy tweak. What’s needed now is a principled approach that prioritizes long-term sustainability for future generations. The household lending regulations announced on June 27 may feel like a sudden and harsh brake, but they are a necessary intervention to convert growing financial imbalance into a manageable risk.
Still, there is regret that more decisive action was not taken earlier. Experts have long warned about the structural vulnerabilities of jeonse loans, government guarantees and gap investing. Had their concerns been heeded sooner, this abrupt deceleration might have been avoided.
Translated from the JoongAng Ilbo using generative AI and edited by Korea JoongAng Daily staff.
with the Korea JoongAng Daily
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