[Editorial] Falling housing ladder

Jeonse is a unique South Korean rental system under which tenants make a large lump-sum deposit — generally 60 to 70 percent of a property's market value — in lieu of monthly rent. The standard lease term is two years and is renewable. Landlords are legally obligated to return the full deposit when the lease ends.

Jeonse prices for apartments in Seoul rose 1.15 percent from a month earlier in May, posting their biggest month-on-month increase since April 2015 (1.25 percent), according to the Korea Real Estate Board.

Seoul's monthly rent growth rate reached 0.81 percent in May, its highest level since June 2015, when the relevant data were first compiled. Monthly rents climbed more than 1 percent in some northern and eastern districts of Seoul with good living environments.

Apartment purchase prices in Seoul climbed 1.06 percent, accelerating by 0.51 percentage points from a month earlier. The average apartment price topped 1 billion won ($662,400) for the first time on record. Pre-sale and move-in rights for newly built 84-square-meter apartments in Seoul's relatively affordable northern districts are reportedly changing hands for 1.7 billion to 1.8 billion won.

Home prices are rising, jeonse prices are surging and even monthly rents are soaring — all at the same time.

In particular, jeonse has long served as an important stepping stone to homeownership for ordinary households, including newlyweds. Therefore, the record surge in jeonse prices is a serious socioeconomic problem that undermines many people's aspirations to become homeowners and live in their own homes.

This spike in jeonse prices was likely due in no small part to the reinstatement of higher capital gains taxes on owners of multiple homes. Before the temporary suspension of higher capital gains taxes expired, most multi-home owners sold off their properties, and consequently, a substantial number of homes with existing jeonse contracts were taken off the market.

Analysts say that, as a result, the supply of jeonse properties has shrunk, adding upward pressure on jeonse prices.

At a recent press conference, President Lee Jae Myung said the decline in jeonse listings was "because owners of multiple homes sold their properties during capital gains tax relief" and described it as "part of a normalization process."

Lee has long made the fight against real estate speculation a key policy priority, stigmatizing multi-home owners as speculators and criticizing jeonse as a vehicle for speculation.

However, the current market instability should not be brushed aside as a minor issue. Housing stability is fundamental to people's livelihoods.

Jeonse has long allowed low-income households and young people without homes to secure stable housing at relatively low cost while saving to buy a home of their own. But jeonse supply has decreased because buyers of homes sold by multi-home owners seeking to avoid higher taxes chose to occupy the properties themselves rather than rent them out. From the standpoint of current and prospective jeonse tenants, this is far from a normalization process.

Ordinary people who have not saved enough to buy a home of their own are now forced to shoulder higher jeonse deposits or monthly rents driven up by supply shortages. Seoul remains a market with strong demand for jeonse. While the system's drawbacks should be addressed, policymakers must not kick away a housing ladder that has long helped ordinary households achieve homeownership.

To rein in soaring property prices, the Lee administration has tightened lending rules, expanded land transaction permit zones and reinstated higher capital gains taxes on multi-home owners. It is now considering raising property taxes as well.

This government is not trying to meet housing demand by increasing supply. Instead, it is aggressively pursuing policies aimed at curbing demand for homeownership by reducing ownership of multiple homes and raising taxes. However, such policies can only send jeonse prices soaring, while exacerbating housing-market anxiety among ordinary people who do not own homes.