For urban tenant families, the difficulty of finding a place to live at an affordable rent does not show any sign of easing. On the contrary, it is worsening as the early spring moving season is approaching. For many families with modest income, it will not be like spring at all when it has already come, as the old Chinese saying goes.
The rise in rent is so steep that few hesitate to call it a crisis for mid- and low-income tenant families. In January alone, rents gained 0.9 percent, the highest in nine years. No wonder, the runaway rents have sent the administration and the political community scurrying for a solution. But there will be no easy way out of the rent crisis, which started to raise its ugly head in the fall of 2010.
According to a recent news report, a typical family having rented a 100 square meter apartment house in Seoul in March 2009 will now have to add 23 million won to his lump-sum deposit of 186 million won if it wishes to renew the “jeonse” contract for another two years. The jeonse, or a lump sum deposited as key money with no additional monthly rent, will go up from 238,740,000 won to 311,220,000 won for an apartment the same size in Seocho, one of the premium residential districts in Seoul.
The soaring rents are the downside of stabilizing housing prices. As home prices declined in many areas and remained stagnant in others, developers shunned building new apartments. Worse still, potential home buyers were putting off their purchases, anticipating the prices would drop further. Subsequently, realtors say, demand for rental homes began to surpass supply in fall last year.
Critics of the government’s policy aimed at stabilizing home prices often come up with misguided prescriptions. Among them is the main opposition Democratic Party, which makes such a radical proposal as rent control.
The opposition party proposes to put a 5 percent cap on year-on-year rent increases and to guarantee the tenant a right to demand a second two-year contract ― measures that can hardly be enforced in any capitalist state. It also proposes to provide the 300,000 families in the lowest-income bracket with 110,000 won in a monthly rent subsidy. But it does not say where the money will come from.
No less misguided are those who propose to ease regulations on home financing, such as debt-to-income restrictions. Their rationale is that demand for rental homes will fall if families are allowed to borrow more money to buy homes at a time when so many new apartment houses remain unsold.
Such a shift in policy may have an intended effect. But the fallout may prove to be unbearable. If their memory is short, its proponents should be reminded that it was the property bubble in the United States that precipitated the Great Recession in 2008. Moreover, home prices in Korea have started to firm up though no action is taken to provide greater access to home financing.
In short, the government has nothing much to do to ease the jeonse crisis though it has become the target of criticism from angry tenants, many of whom may have to move out to less desirable residential districts. True, the government may turn some of the 3,000 new unsold apartment houses, built as part of its public housing projects, into rental homes. But such an action will have a limited impact at best.
Under these circumstances, the government will have to abandon the idea of resolving the jeonse crisis in the short term. Instead, in a long-term approach, it could increase the portion of small rental homes in its public housing projects and provide incentives for private developers building such homes.