Value context and insight. lkm@koreatimes.co.kr
Bank of Korea chief strikes back at land ministry over soaring jeonse prices
Bank of Korea Governor Lee Ju-yeol
By Lee Kyung-min
By Lee Kyung-min
Bank of Korea Governor Lee Ju-yeol made it clear that the recent spike in jeonse prices stems from a supply-demand mismatch in the market, squarely rebutting the claim made by the land minister and ruling party lawmakers who say the record-low interest rate was the chief culprit.
Lee's remarks brought to the fore a decades-long issue whereby policymakers and lawmakers point to low interest rates as the driver of housing price spikes, in what the central bank considers an “irresponsible attempt” to divert criticism for policy failures.
Implicit in the remarks are criticism of the land ministry's revision to a related leasing law largely criticized as “overly protective” of tenants and considered a reason landlords raised jeonse deposits, switched to asking for monthly rent, or outright pulled their rental properties off the market. This significantly reduced the number of homes available for rent, with more people seeking housing and prices soaring as a result. Unique to Korea, jeonse is a home renting system whereby tenants pay a refundable lump sum deposit instead of monthly rent.
“Of course, considering the interest rate alone, low rates help reduce borrowing costs and in turn increase lease demands around popular residential areas, one of the many reasons behind the rise in leasing prices,” Lee said during a press conference Dec. 17.
“But low interest rates cannot be the main cause of the recent surge in jeonse prices, since the low interest rate has been maintained since June. It has to do more with the imbalance between supply and demand in the market,” he added.
The BOK head's stance is the reaffirmation of the opinion earlier expressed during the central bank's November Monetary Policy Committee meeting. According to the meeting minutes, one of the seven committee members said, “There is no statistically significant causal relationship between interest rates and jeonse prices. The jeonse price hike materialized shortly before and after the implementation of the revised leasing law.”
The clarification takes on the land ministry head-on, less than a month after land minister Kim Hyun-mee attributed the rise of jeonse prices to low interest rates, a stance repeated by first vice land minister Yun Seong-won who said the aforementioned law revision was not why the jeonse price was soaring.
“The price hike is driven by low interest rates and a rise in demand for homes in line with an increasing number of single- and two-person households,” he said during an MBC radio interview Nov. 20