Why Young Adults in Their 20s and 30s Are Being Driven Out of Seoul

The Three Tenant Protection Laws, which were supposed to protect jeonse tenants, are instead worsening the jeonse shortage. Now, one year after the so-called Two Lease Laws—the right to request contract renewal and the rent cap system covering jeonse and monthly rent—took effect, jeonse listings have disappeared from the real estate market and prices have surged sharply. As a result, young people in their 20s and 30s with limited financial means have been pushed out to the outskirts of Seoul and the surrounding metropolitan area, where housing is relatively cheaper.

This situation was created by the government’s misguided policy direction. The government identified multiple-home owners as the cause of rising housing prices and strengthened property holding taxes as if to punish them. It also introduced the Three Tenant Protection Laws, claiming they would protect tenants from multiple-home owners. By controlling the cap on increases in jeonse and monthly rent, and allowing tenants to keep jeonse contracts for a total of four years if they wished, the government assumed that if it treated tenants as the weaker party and enacted mandatory provisions in their favor, multiple-home owners would put their homes on the market and the real estate market would stabilize.

In the end, however, the government pushed the very tenants it claimed to protect into even worse conditions. Affordable jeonse homes in the neighborhoods where they wanted to live disappeared. Unable to bear the soaring prices, tenants had no choice but to move into smaller homes or relocate to cheaper outlying areas. They had to give up better school districts, and their commuting times grew longer.

Why did jeonse homes disappear? Landlords, burdened by increased property holding taxes and the Three Tenant Protection Laws, came to prefer semi-jeonse or monthly rent over jeonse. There have also been more cases of landlords giving up on leasing altogether and leaving homes vacant because they want to avoid conflicts with tenants during contract renewals or disclosure of rental income. As for the jeonse units that remain, landlords have been forced to raise prices in advance to prepare for the possibility that they may not be able to increase them for four years, making sharp price increases inevitable. Since returns from leasing homes are no longer promising, the shortage of jeonse properties is expected to worsen further.

Heavy tax burdens have also blocked housing transactions and thrown the real estate market into even greater confusion. At present, the government imposes high tax rates throughout the entire process, from home purchase to sale, including acquisition tax, property holding tax, and capital gains tax. Even multiple-home owners burdened by holding taxes cannot easily sell their homes because of capital gains tax. Repeated failures in real estate policy have caused prices to surge, dramatically increasing transaction costs. In addition, when people dispose of existing homes and acquire new ones, acquisition tax is also a significant burden. The government has made it difficult to buy, sell, hold, or lease a home. As a result, housing prices have continued to rise while jeonse homes have disappeared.

To resolve the jeonse shortage, it is necessary to ease regulations on multiple-home owners. Rather than legally restricting homeowners’ exercise of their property rights, the government should make it possible for them to generate income through housing rentals; if it does so, supply will naturally increase. If the supply of jeonse homes exceeds demand, tenants will be protected and jeonse prices will fall even without protection measures like the Three Tenant Protection Laws.

Reducing the tax burden on multiple-home owners could also help resolve the jeonse shortage. The damage caused by the various taxes and the Three Tenant Protection Laws, all introduced in the name of protecting tenants, has fallen squarely on ordinary people and those in their 20s and 30s. The structure is such that the tax burden on multiple-home owners is inevitably passed on to tenants through higher housing prices and jeonse costs. If taxes on holding, buying, and selling homes are lowered, housing transactions will become more active, which would help stabilize not only jeonse prices but also overall housing prices.

Without a change in how society views homeownership and multiple-home owners, real estate policy failures will only be repeated. The current turmoil was caused by the mistaken policy stance of treating multiple-home owners as speculators and burdening them with excessive taxes. Only when we recognize that multiple-home owners are not the enemies of tenants but play an important role in supplying housing in the real estate market can the jeonse shortage be resolved and the surge in housing prices be prevented.

Eun-kyung Kwak, Head of the Corporate Culture Office, Center for Free Enterprise (CFE)

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Original title: 2030이 서울 밖으로 쫓겨난 이유

Author: Eun-kyung Kwak

Date: 2021-06-28

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=press&idx=24008