The Three Lease Laws Must Be Reexamined from Scratch

Housing prices have soared, and finding a jeonse rental has become more difficult. By pushing through the three rental laws, the government has lowered the quality of housing and increased housing costs. Their side effects are still continuing, leaving the real estate market in unprecedented turmoil. The damage is likely to persist into the new year. Now that it has become clear that misguided government policy is the cause, this is the time for discussion on how to resolve it.

The three rental laws consist of the lease reporting system, the right to request contract renewal, and the rent cap system for jeonse and monthly rentals. They took effect on July 31, 2020, under the banner of protecting tenants. In reality, however, they have proven to be a system that inflicted pain on tenants and threw the rental market into confusion. Above all, their biggest side effect was raising rental costs. In addition, landlords faced heavier tax burdens, and tenants’ burdens rose accordingly. As a result, over the past year, jeonse prices for Seoul apartments rose by an average of 27.2%. That means the rate of increase, which had averaged 4.2% annually over the three years from 2017, became 6.5 times higher.

As policy uncertainty increased, the number of disputes between tenants and landlords also grew. Landlords were burdened by the need to occupy their homes themselves, while tenants suffered from demands to vacate. As landlords were pushed into having to determine whether actual occupancy requirements applied, mutual distrust and conflict became severe. The side effects of this policy failure reached an extreme, even causing people to fight with one another because of the three rental laws.

A shift from jeonse to monthly rent has also appeared. As the severe shortage of jeonse listings continued, more households moved from jeonse to semi-jeonse or monthly rent. According to the Seoul Real Estate Information Plaza, out of a total of 121,180 apartment jeonse transactions in Seoul this year, 41,344 were semi-jeonse or monthly rent, up 5.7 percentage points from last year. In this way, the three rental laws came to be seen as legislation that raised only housing insecurity and housing costs, with little prospect of positive effects.

Calls to abolish the three rental laws, which have produced serious side effects, are growing stronger. According to a poll conducted by RN Search of 1,065 people aged 18 and older nationwide, 45.3% responded that “the three rental laws should be abolished,” which was 15 percentage points higher than the 30.4% who said they “should be maintained or strengthened.” Given that the three rental laws caused the jeonse shortage and destabilized the market, the government and the National Assembly must present responsible follow-up measures.

In fact, the three rental laws were criticized as highly problematic from the legislative process onward. It was obvious that they would do great harm because they interfered with free transactions and undermined property rights. Real estate experts all pointed out that this flawed legislation would harm the parties to transactions, but the Democratic Party pushed it through recklessly, insisting it would pass no matter what. In the end, everyone became a victim of a policy that ignored reality while being captivated by socialist delusions.

Going forward, the three rental laws will continue to produce side effects in the real estate market. The provision that prohibits rent increases of more than 5% when a tenant demands a two-year contract extension will continue to heighten market instability. Instability in rental prices will grow, and supply-demand conditions are likely to keep worsening. Both landlords and tenants will suffer from the increased burden. The more rigid the system becomes, the greater its side effects are bound to be.

The lease reporting system took effect on June 1, 2021. If this regulation is followed by measures to impose taxes on jeonse and monthly rentals, all parties to these transactions are likely to suffer under growing tax pressure.

The three rental laws should be comprehensively reexamined so as to improve the stability of jeonse transactions and minimize side effects. The proper solution is to review every provision from scratch and amend the laws at a level that leaves only what is necessary while abolishing all the rest.

Sung-no Choi, President of the Center for Free Enterprise (CFE)

---

Original title: 임대차 3법 원점에서 재검토해야

Author: Sung-no Choi

Date: 2021-12-28

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=press&idx=24484