The government's newly introduced jeonse and monthly-rent trust scheme is a new type of lease contract that combines the strengths of jeonse, a lump-sum deposit lease, and monthly rent. For tenants, it offers a safe jeonse arrangement that lowers housing costs without the risk of deposit fraud. For landlords, it provides stable monthly rental income without concerns over missed payments. Last week's column introduced those two functions. Today I want to turn to the last of the three "S" benefits of the trust scheme — housing supply — and the role it can play in stabilizing the housing market.
Where has jeonse money been flowing all this time? In many cases, the lump sum entrusted by a tenant became the funding source for a landlord's gap investment — buying a home while a tenant's jeonse deposit covers most of the price. The trust scheme changes that flow of money. Deposits entrusted by tenants are redirected through a housing supply promotion fund and used again as financing for new housing supply.
Through the trust scheme, the Korea Housing & Urban Guarantee Corporation (HUG) will invest in project financing (PF) loans for the first time. By supplying liquidity in a timely manner to projects that are commercially sound but strapped for cash amid a PF credit squeeze, it will support steady housing supply. Where HUG has until now backed housing supply through PF guarantees, it is expanding its role beyond guarantees into direct investment. HUG's PF guarantees can raise the stability of those investments while securing an appropriate return. If 15 trillion won ($10.8 billion) is entrusted annually, the scheme could support the supply of about 90,000 homes, contributing to price stability through expanded supply.
The benefits go beyond larger supply. The link through which jeonse deposits have fueled purchase prices can also weaken. An analysis by the Korea Research Institute for Human Settlements found that a 1 percentage point increase in gap investment pushes purchase prices up by 0.148 percentage point. If jeonse deposits are channeled into housing supply rather than gap investment through the trust scheme, the structure in which those deposits exert upward pressure on purchase prices can be eased.
Over the medium to long term, once the size of the fund stabilizes, we plan to broaden the investment scope to areas such as construction and the purchase of rental housing. That would expand the stock of public rental housing and help stabilize the rental market. As of 2020, public rental units accounted for 8.9% of all housing in South Korea, well below the Netherlands at 34.1%, Austria at 23.6% and Denmark at 21.4%. The government and experts broadly agree that a sufficient stock of public rental housing must underpin any effort to stabilize jeonse and monthly rents.
Building this virtuous cycle that channels jeonse deposits into housing supply requires capabilities in two areas at once: stabilizing the rental market and expanding housing supply. HUG has served as a safety net for the rental market, operating the Safe Jeonse app, which has surpassed 1 million cumulative downloads, and providing an average of 68 trillion won in jeonse guarantees over the past three years. Over the same period, it has also provided a total of 89 trillion won in housing supply-related guarantees, accumulating expertise in housing supply finance. On the strength of that experience, HUG is equipped to oversee and manage the trust scheme as a whole, spanning both rental market stability and housing supply.
Safe jeonse, stable income, and expanded housing supply and a stable housing market. These are the three "S" goals of the trust scheme. If the scheme takes root as one pillar of the rental market, it could mark a turning point in guiding South Korea's distinctive jeonse system — long dependent on the private credit of individual landlords — toward a safer lease framework based on public credit guarantees. As the organization overseeing the program, HUG will focus its capabilities on helping the trust scheme settle into the market. The scheme will be the moment HUG moves beyond a guarantee institution to become a public platform for housing supply and housing finance that comprehensively supports and takes responsibility for the housing stability of the people.
