Rent crisis, déjà vu from 2021? 'Supply reduction' differs

Recent increases in apartment sales prices and rents in Seoul and the surrounding metropolitan area have sparked concerns of a "déjà vu" from the severe housing crisis experienced in 2021. During that period, soaring apartment prices and intense rental shortages plagued the region.

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The current situation is different from 2021, when the market shock from the 'Lease Law' was significant.

Seoul's apartment prices saw a year-on-year increase of 6.48% in 2021, following a 5.58% rise the previous year. Sales prices also climbed by 8.02% annually. This year, as of the fourth week of June, Seoul's apartment sales prices have cumulatively risen by 4.82%, with rents up 4.79%, showing a similar pattern of simultaneous increases.

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In 2021, landlords raised rents for four years at once when signing new contracts after the introduction of the '2+2 year' lease term and a 5% rent increase limit.

However, a prevailing assessment among real estate experts is that the underlying causes of the current rental surge differ significantly from those in 2021. The 2021 crisis was largely attributed to the market shockwaves from the "Lease Law" implemented in July of that year. This law introduced a "2+2 year" lease term, a tenant's right to request contract renewal, and a 5% limit on rent increases. In response, landlords often raised rents for new contracts to cover four years' worth of increases at once, leading to a temporary but significant market disruption.

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The current rental difficulties are attributed to a decrease in apartment supply and the structural shift towards 'monthly rentification'.

In contrast, the current rental difficulties are seen as a result of a confluence of factors. These include a substantial decrease in the supply of new apartments entering the market and a structural shift towards "monthly rentification" – where more rental agreements are structured as monthly rent rather than lump-sum deposit (jeonse). Apartment move-ins in Seoul have decreased from 48,000 units last year to an estimated 27,000 this year and are projected to fall further to 17,000 next year. Concurrently, the proportion of monthly rent contracts in Seoul's apartment rental agreements increased from 44.0% in the first five months of last year to 53.1% during the same period this year.

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Apartment move-ins in Seoul have decreased from 48,000 units last year to an estimated 27,000 this year and are projected to fall further to 17,000 next year.