Jeonse is a uniquely Korean rental system in which a tenant deposits a large lump sum to rent a home without paying monthly rent, then recovers the deposit when the contract ends. Its origins trace back to the Joseon Dynasty. The 1742 "Diary of the Royal Secretariat" records that descendants of Kim Geuk-seong, the Gwangseong Buwongun who served as Right State Councilor, fell into poverty and leased out their house for 400 nyang (tens of millions of won today) before retiring to the countryside. The modern form of jeonse took shape in earnest after the 1876 Treaty of Ganghwa. At the time, the opening of the ports of Busan, Incheon, and Wonsan drew people into the Hanyang area, where they reportedly rented homes for 70 to 80 percent of the house price.
After the Korean War, the population rapidly crowded into Seoul and other large cities in search of jobs, making the housing shortage severe. There were no policy mortgages to help ordinary people borrow funds to buy homes, and the threshold for bank loans was high. Renting on a monthly basis was also unappealing, as it made saving a lump sum difficult. People preferred jeonse, which at least allowed them to keep a deposit. The arrangement suited landlords as well, who could avoid the stress of chasing monthly rent and instead deposit the money in a bank to earn interest or repay loans, aligning their interests. In effect, jeonse was a self-help measure the private sector devised to address the government's shortage of housing supply and the immaturity of finance.
Recently, President Lee Jae-myung described jeonse as "a kind of private lending," pointing out that "providing many jeonse loans has been the main cause of rising home prices." Observers in the market expect that regulations on jeonse loans and stronger taxation policies may soon emerge. There is an aspect in which jeonse deposits have been used as funds for landlords' gap investment. Yet it is also true that jeonse served as a housing ladder for ordinary people and the middle class. For tenants, jeonse is a "usufructuary right" under civil law, granting the right to use a home at a price lower than the purchase price for at least four years, as well as a "claim" that guarantees priority repayment. Tenants also receive substantial protection under the Civil Act and the Housing Lease Protection Act. Before taking a scalpel to jeonse, the government must examine not only its dysfunctions but also its beneficial functions and its historical and social context. Rather than blaming housing-price instability solely on the private sector, including jeonse, the government should first look back at the shortage of housing supply, the concentration in the Seoul metropolitan area, and distorted financial policies to avoid killing the ox to straighten its horns.
