[비즈한국] Public opinion surrounding the jeonse system is cold. With the consecutive occurrences of jeonse fraud, inverse jeonse, and gap investment issues, arguments that "the jeonse system has reached the end of its lifespan" are gaining momentum. Critics argue that a structure where landlords borrow large deposits from tenants to buy homes is inherently problematic. Indeed, it is difficult to deny that jeonse has become a link connecting rising housing prices, household debt, and instability in the rental market.
However, is abolishing jeonse the answer? One must approach this question with caution. Jeonse is not just a simple rental contract method. It is a private residential finance system that has operated amidst South Korea's high housing prices, lack of public rental housing, unstable retirement income, and low accumulation of financial assets. If you abolish a system because there are problems, the costs and risks that the system absorbed do not disappear; they are simply transferred to someone else.
If jeonse is abolished or drastically reduced, the first people to bear the cost will not be the landlords, but the non-homeowning tenants.
Jeonse is not free housing
When defending jeonse, it is often said that "you live for free because you don't pay monthly rent." This is not an accurate explanation. Tenants provide a large deposit to the landlord interest-free or at a low rate, and the opportunity cost of that money serves as the rent. If they took out a jeonse loan, they also pay interest to the bank.
Nevertheless, jeonse is necessary because the cash flow burden is smaller than that of monthly rent. While jeonse loan interest is a cost that dissipates every month, the deposit covered by the tenant's own capital can be returned when the contract ends normally. On the other hand, monthly rent is pure consumption that is spent every month.
For example, let's assume a jeonse home with a deposit of 400 million won is converted to a deposit of 50 million won and a monthly rent of 2 million won. The tenant gets back 350 million won in deposit, but must newly bear an annual rent of 24 million won. Even if they put the returned money into a 3% annual interest savings account, the pre-tax interest income is only 10.5 million won per year. Even by simple calculation, housing-related cash expenditures increase by 13.5 million won per year.
While the calculation may vary for households with large jeonse loans, this is why one cannot conclude that the conversion of jeonse to monthly rent lowers the burden for all tenants.
The Bank of Korea has pointed out the same issue. The Bank of Korea evaluates that jeonse has served as a "housing ladder," lowering housing cost burdens and moving people toward homeownership. On the other hand, it analyzed that the transition to monthly rent could significantly increase housing costs relative to income for low-income tenant households and reduce their consumption capacity.
The market is already shifting rapidly to monthly rent
Before discussing the abolition of jeonse, we must look at what is happening in the current rental market.
According to an analysis of Ministry of Land, Infrastructure and Transport transaction data by the Bank of Korea, the proportion of monthly rent in total rental transactions rose to 60.2% as of the contract date in October 2025. Based on the reporting date, it was 63.5% in the same month. The proportion of monthly rent for non-apartments reached 77.2%. For apartments as well, the proportion of jeonse continues to decrease, with semi-monthly and monthly rent taking its place.
In the single month of December 2025, 166,895 monthly rent transactions were reported, a 26.5% increase from the same month the previous year. The era when monthly rent was a more exceptional rental method than jeonse is already over. The majority of transactions in South Korea's rental market are shifting toward monthly rent or monthly rent with a security deposit.
The problem is the speed of this transition. In a situation where housing prices are high and income growth for tenant households is limited, if jeonse decreases rapidly, households must pay monthly rent instead of giving up on buying a home. The problem does not end just because a household that cannot afford a 1 billion won home decides not to buy one. That household still needs to live somewhere and must utilize access to jobs, education, and transportation in Seoul and the metropolitan area.
When jeonse disappears, housing costs do not disappear. The asset cost known as the deposit simply changes into an income cost known as monthly rent.
Monthly rent is more cruel to low-income earners
The biggest problem with monthly rent is that it damages a household's monthly cash flow.
Using the Household Finance and Welfare Survey, the Bank of Korea calculated the effect of jeonse household transitions to monthly rent and found that the housing cost ratio to income for households in the 1st income quintile rises significantly. If half of a non-apartment jeonse deposit is converted to monthly rent, the housing cost burden for 1st-quintile households jumps from 14.0% to 29.4%, and if converted entirely to monthly rent, it rises to 43.0%.
This does not mean just one housing cost item increases. As rent increases, spending on food, education, medical care, and retirement savings decreases. Consumption shrinks, and the pace of asset accumulation slows down. Because a significant portion of a paycheck is transferred to the landlord every month, the time required to raise seed money for purchasing a home also becomes longer.
In the Bank of Korea's analysis, households that switched to monthly rent saw a greater increase in credit loan usage than households that maintained jeonse. This means that they may have supplemented the cash flow shortages caused by rent burdens with credit loans, which have relatively higher interest rates. It may seem like reducing jeonse loans would reduce household debt, but if a tenant's rent burden increases, the form of debt may simply change to credit loans or living cost loans.
Those who advocate for abolishing jeonse criticize the jeonse deposit as "hidden debt." This is not an incorrect point. However, whether it is desirable to sacrifice a tenant's disposable income to reduce a landlord's debt is a separate issue.
Jeonse expands the freedom of housing choice
Another function of jeonse is providing tenants with the opportunity to live in relatively high-quality housing without owning it.
Let's say a household has 300 million won in equity. The location of the housing they can buy and the housing they can rent via jeonse can be significantly different. For an apartment with a purchase price of 900 million won and a jeonse price of 500 million won, they could live there using a certain amount of jeonse loans, but buying it would require much more equity and a mortgage.
Jeonse is also useful for young people with high potential for job relocation, households that must live in a specific area for a certain period due to children's education, and the elderly who want to downsize after retirement. This is because they can secure a certain quality of residential service for a long period without necessarily owning a home.
In South Korea, single-person households reached 8.045 million in 2024, accounting for 36.1% of all households. In Seoul, the proportion of single-person households among all households is 39.9%. As household size becomes smaller and job and regional mobility become more frequent, the importance of an intermediate option between buying and monthly rent becomes greater.
Jeonse is not the best system for everyone. However, removing the option of jeonse is not a policy that expands tenant choice either.
Who will fill the void left by Jeonse?
To argue for the abolition of jeonse, one must answer the final question: What are the alternatives for millions of tenant households after jeonse disappears?
Is public rental housing sufficient? No. Is private long-term rental housing being supplied stably? It is difficult to say so. Can the high rents in Seoul and the metropolitan area be covered solely by monthly rent tax credits? This also has its limits.
Ultimately, if jeonse is abolished rapidly, a significant number of households will move to monthly rent. As the proportion of monthly rent rises, landlords gain stable rental income, but tenants spend a certain portion of their income on housing every month. The asset-owning class gains rental income, and the non-asset class pays rent with labor income. It is a structure where real estate asset gaps turn into income gaps.
Jeonse is not a perfect system. It stimulates gap investment during housing price upswings and creates the risk of inverse jeonse during price downswings. The Bank of Korea also evaluates that the expansion of monthly rent has positive aspects in lowering household debt and housing market volatility.
However, one needs to look at the side effects of the system and the reasons for its existence simultaneously. Jeonse has allowed numerous non-homeowning households to reduce monthly rent burdens, accumulate assets for a certain period, and select better locations and residential environments than they could afford through purchase. In a state where public rental and private long-term rentals are insufficient to replace this function, eliminating jeonse is closer to cost shifting than reform.
What South Korea needs is not the abolition of jeonse. We need jeonse where deposits are safely returned, jeonse that can withstand housing price declines, and jeonse that does not become fuel for gap investment.
We should not leave jeonse as it was in the past. However, it is also dangerous to eject jeonse itself simply because jeonse fraud has occurred. This is because what will fill the void left by jeonse is much more likely to be expensive monthly rent rather than cheap public housing.
The failure of a system is a reason to fix the system safely, not a reason to eliminate an option needed by the working class.
※ Kim Hak-ryeol, the head of the Smart Tube Real Estate Research Institute, known by the pseudonym "Pashong," previously served as the team leader of the Real Estate Research Division at Gallup Korea. He operates and hosts the Naver blog "Pashong's World Exploration" and the YouTube channel "Stew TV." His books include "3040 Beginner's First Real Estate Investment (2026)," "Rewriting the South Korean Real Estate User Manual (2025)," "The Power of Gyeonggi Real Estate (2024)," "The Absolute Principles of Seoul Real Estate (2023)," "The Future of Incheon Real Estate (2022)," "Kim Hak-ryeol's Absolute Principles of Real Estate Investment (2022)," "South Korean Real Estate Future Map (2021)," and "From Now On, Only Places That Rise, Rise (2020)."