When this month marks the two-year anniversary of the enforcement of the Lease 2 Act (the right to apply for renewal of the contract and the limit on the monthly rent), there was a lot of observation that the number of properties for which the rent was raised significantly would increase sharply. Landlords, who were locked in a 5% increase, were expected to receive a significant increase in the amount of their jeonse as they welcomed new tenants. However, these concerns did not materialize. Rather, as the demand for jeonse disappears, a ‘reverse jeonse crisis’ is taking place in which landlords cannot find tenants. It can be seen from the fact that the number of rentals for apartments in Seoul has increased by 118% compared to two years ago.
Experts point to the rise in interest rates as the main reason. The interest rate on the cheonsei loan has risen to the 5% range per year, but the conversion rate between jeonse and monthly rent is in the 4% range. Only quasi-jeonse demand increased, while pure jeonse demand decreased. People who were thinking of getting a loan and moving into a rented house also gave up on the news that interest rates would continue to rise.
In the face of soaring interest rates, all generations move aside
Was the concern over the past that the price regulation imposed directly on the rental market would cause a surge in Jeonse prices two years later? I don’t think so. The irrational number of rental regulations that go once morest market principles has already caused a distortion of the triple price of Jeonse. These are the low Jeonse payment due to the renewal of the contract, the large increase in the Jeonse payment for new tenants, and the compromised Jeonse payment in the middle of the conflict between the landlord and the tenant.
In this passage, one of the important premises of economics research is ‘ceteris paribus (if all other conditions are equal)’. If there were no major fluctuations in interest rates (Ketteris Paribus), the whole country might be suffering from measles by now. The side effects of rental regulations can be staggering, but this time, we’re just lucky. The sharp rise in interest rates shifted away from the previous generation, and a reverse tax crisis that was less severe for the weak appeared. However, there is no law preventing the price of jeonse from soaring following two years.
It is not difficult to predict how one variable will affect the economy through which ripple path. The size is unknown, but the direction can be foreseen. In the same vein, the anti-market policy that has soared in the past administration is as if its fate has already been decided.
The fate of direct market intervention is obvious
A recent survey by the Korea Federation of Small and Medium Businesses revealed that the 52-hour workweek system was implemented for workers’ ‘evening life’, but the result was only a decrease in income and a ‘twin job’ to compensate for this. The New Deal Fund, which the Moon Jae-in administration rushed into, showed poor performance with an execution rate of 25% and a cumulative return of 1%, showing the words of a controlled fund. The price-linked pricing method for crude oil production, introduced in 2013 in the name of protecting dairy farmers, formed a deformed price structure in which the price of domestic crude oil was more than double that of imported crude oil. Of course, it is not without the effect of reducing the cost of social conflict and creating a kind of safety net. However, this was only meaningful in terms of social policy and did not play a role in promoting competition and increasing productivity in the economy and society.
Even following witnessing this policy failure, the Yoon Seok-yeol government said that it would implement the medium-term supply unit price interlocking system from next month, and is trying to change the policy from ‘abolition’ to ‘maintain’ of sales regulations at large marts. It’s good to compete with the opposition party for people’s livelihood, but I’m worried that it’s just protecting the area that restricts competition rather than growing the pie of the entire economy and fattening the people’s livelihood. Even so, it is somewhat awkward for the new government to repeat a similar argument since the opposition party’s claims only mean ‘people’s livelihood’. What kind of change, innovation, and creativity will spring out of it? How is it different from the previous Moon Jae-in government?
