Although the Korea Development Institute (KDI) said that the Jeonse price index in the metropolitan area has surged by more than 70% over the past 10 years, it is controversial because it claims that housing costs, taking into account inflation and interest rates, have rather decreased.  (Source = Yonhap News)
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“Housing costs including jeonse have fallen 14.5% in 10 years” KDI report controversy

Although the Korea Development Institute (KDI) said that the Jeonse price index in the metropolitan area has surged by more than 70% over the past 10 years, it is controversial because it claims that housing costs, taking into account inflation and interest rates, have rather decreased. (Source = Yonhap News)

The Korea Development Institute (KDI) is controversial because it claims that although the price of jeonse in the metropolitan area has risen sharply over the past 10 years, housing costs, taking inflation and interest rates into account, have declined.

Oh Ji-yoon, head of the KDI Real Estate Research Team, said in a recent ‘Report on Changes in Rental Housing Costs and Housing Supply’, “As of the end of last year, the national real integrated housing cost index was 14.5% lower than in 2011, 10 years ago.” Although the housing cost has risen sharply since 2020, it is the effect of a long-term decline from 2012 to 2019, and the current housing cost level is lower than in 2011.

According to the report, the real level of integrated housing cost has decreased by 5.7% in the metropolitan area and 20.5% in non-metropolitan areas over the past 10 years. On the other hand, the Jeonse index soared 72.2% in the metropolitan area and 29.4% in the non-metropolitan area during the same period. This is the background to the controversy that the housing cost calculated by KDI was far from the ‘feeling housing cost’.

The reason for this discrepancy is that the approach of the National Statistical Office, which reflects the consumer price index (CPI) when calculating housing costs, is different from that of the KDI.

KDI pointed out that distortion occurs as the CPI does not reflect the cost of Jeonse (financial costs, etc.) and treats the deposit as a consumer goods such as food and beverages. KDI’s real integrated housing cost is calculated as an opportunity cost from the perspective of procurement costs, such as interest rates, rather than considering the Jeonse deposit as housing cost. Jeonse deposits are returned to the lessee after the lease is over, so it is difficult to see them as housing expenses. In other words, if the KDI logic is that the integrated housing cost is more affected by interest rates than the jeonse price, even if the jeonse price rises, the integrated housing cost can go down.

When asked if the public could agree on the analysis that housing costs were cheap, team leader Oh Ji-yoon replied, “The metropolitan area and non-metropolitan areas are a little different, but that’s the way it is nationwide.” Regarding the point that the deposit for Jeonse is a kind of sunk cost, he explained, “If you want to live on monthly rent instead of Jeonse, how much you pay monthly is an opportunity cost.” Some point out that these remarks from Team Leader Oh are out of step with the lives of ordinary people who have reduced their homes or moved to a cheaper area because the market could not finance the soaring deposit for jeonse.

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