Release of medium-to-long term outlook on respective agenda based
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Public Finance

Policy Study

Policy Improvement in Response to Structural Changes in the Housing Rental Market

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  • Author SONG. Inho
  • Date 2016/12/31
  • Series No. Policy Study 2016-04
  • Language Korean
SUMMARY The factors influencing the shift from Jonsei to Wolsei(monthly rents) can be found within the changes in Korea’s demographic structure. This study shows that Korea’s rapidly aging household structure is connected to the paradigm shift in the rental housing market. The microdata on the rental housing market show that the proportion of Wolsei by single-person households marks 50%, meaning that long-term projections for these households can serve as a barometer to predict structural changes from Jonsei to Wolsei. The distribution of the age groups of single-person households shows that the number of single-person households aged below 30 will decline while those aged 60 and over will rise sharply, accounting for the majority of all single-person households. According to the analysis results, older household heads have a stronger tendency to choose Wolse, implying that a faster aging population will lead to more monthly rentals, particularly among seniors. The analysis also found that higher incomes entail larger housing demand for areas(m2) and a stronger preference for Jeonsei over Wolsei. Therefore, as Korea’s population aging accelerates and low income growth rate to exceed past Jonsei levels, the long-term projection of Korea’s rental housing market is that the proportion of Wolsei rentals will continue rise to surpass that of Jeonsei rentals, but both will coexist like an equilibrium rate in the market.

Current economic factors are also influencing the structural change of the rental market. As the conversion rate, i.e the rate applied to convert Jeonsei to Wolsei, hovers above the base interest rate, landlords are shifting from the former to the latter because from the leaser’s perspective, a lower interest rate means a smaller yield from Jeonsei deposits. Indeed, an increasing number of landlords are converting Jonsei to Wolsei―applying the conversion rate, which is 6-7%, higher than the interest rate―or starting on a monthly rent basis altogether. Subsequently, the conversion rate has become a driver in the rise in Wolsei rentals.

The long term shift from Jonsei to Wolsei is also related to housing demand. The long term housing demand is expected to increase at a slow pace and then start to decrease from 2035. This result is directly influenced by Statistics Koreas’ projections for population and households, which state that there will be a decline in the number of household members aged 60-64 from 2034, those aged 55-59 from 2029 and those aged 50-54 from 2028. Considering that the housing area is expected to contract in the long-run, counter measures are needed to shift the focus of housing market conditions and systems from supply to sustain and management.
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