Homes, Deposits and Debts: Inside South Korea’s Unusual Housing Market
- uraebsamen
- 5 days ago
- 3 min read
South Korea’s housing market is defined by extreme urban concentration, innovative but distortion-prone finance tools such as jeonse (전세), and repeated policy swings that have left affordability strained despite large public building plans. In 2025 it remains one of the OECD’s least affordable markets in major cities, even as prices have stabilised nationally.
What makes Korea different
As also described in my book Seoul Searching – An Expat’s Tale of Thriving in Korean Corporations and Culture, Korea’s housing market’s most distinctive feature is jeonse, a lump-sum lease in which tenants hand over a large deposit—often 50–80% of a property’s value—instead of paying monthly rent, receiving the full amount back when they move out. This turned landlords into quasi-banks and tenants into de facto lenders, a structure rarely seen elsewhere and deeply tied to Korea’s high savings rates and historically elevated interest rates.
Korea’s market is also unusually polarised between Seoul and everywhere else, with capital‑region apartments costing many years of a typical household’s income—far more than in many European or North American cities—while some regional cities struggle with oversupply and ageing populations. High household debt, much of it tied to housing, means that any change in housing policy can have big consequences for banks and the wider economy—much more so than in countries where people spread their wealth across a broader mix of assets such as stocks, bonds and other investments.
How it developed over time
Modern jeonse emerged in the 1960s–70s as a workaround for a banking system focused on corporate lending and a shortage of mortgages for households. As Korea urbanised and incomes grew, jeonse deposits financed construction and investment, effectively acting as a private shadow-banking channel that supported rapid apartment-led development.
From the 1990s onwards, deeper mortgage markets, financial liberalisation and repeated property booms gradually shifted the balance toward ownership and monthly rents, but jeonse remained central in Seoul. Policy since the 2010s has oscillated between curbing speculation with tighter lending and taxes, and loosening rules to spur supply and construction whenever prices or growth falter.
Affordability and recent pressures
After a pandemic-era surge, housing affordability improved modestly nationwide as interest rates rose and prices cooled, with a national affordability index near 60 in Q2 2025 (lower meaning more affordable) down from 89 in Q3 2022.[1] Yet in Seoul, price-to-income and affordability indicators remain at “severely unaffordable” levels, with local indices well above national averages and square-metre prices far outstripping wage growth.
Jeonse has become more fragile: regulatory changes in 2020 granting stronger renewal rights and informal caps on increases squeezed yields, while slower price growth and fraud scandals exposed the risks of landlords failing to return deposits. By early 2024 the land minister was openly declaring that jeonse’s time had passed, signalling a long-term shift toward monthly rents and conventional mortgages.
Current policy responses
The government has announced plans to accelerate construction of more than 400,000 additional homes over six years on top of existing projects, including redevelopment in Seoul and use of some green-belt land.[2] Tax breaks for builders and first-time buyers, looser rules on reconstruction and greater support for public rental housing are intended to cool expectations of ever-rising prices and ease deposit burdens.
At the same time, regulators and the central bank face a dilemma: cheaper credit would help young households and landlords roll over debts, but risks reigniting speculative buying and pushing affordability further out of reach. The result is a market in which housing remains both a social flashpoint and a macroeconomic pressure point—distinctive not just for how Koreans live, but for how their homes finance the broader economy.
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