The impact of deposit insurance on rental deposit ratios: Evidence from default events

This study investigates the practical effects of Korea’s rental deposit insurance, which has attracted increasing public attention since 2022 due to growing concerns over tenant deposit defaults and insurance claims. Specifically, it examines how deposit insurance coverage and institutional reforms have influenced the rental deposit-to-value ratio. Using real estate auction data, a two-way fixed-effects model that controls for regional and time-specific heterogeneity is employed. The analysis period is divided into three phases based on key institutional changes: the pre-popularization period, the period between popularization and the policy change, and the post-policy change period. The results indicate that deposit insurance significantly increased the deposit-to-value ratio. However, following the 2023 policy reform, its effect became negative—particularly among tenants in properties without senior lien claims. Notably, the highest deposit-to-value ratios were observed during the insurance popularization period. These findings suggest that both the expansion and restructuring of deposit insurance have had a substantial impact on tenant contract behavior, particularly in shaping the acceptance of high deposit-to-value rental agreements. The study concludes that the current policy of capping insurance coverage at a fixed percentage of the property’s appraised value may function as an effective mechanism to curb excessively high deposit-to-value arrangements and reduce the incidence of high-risk lease contracts in the housing market.