The Effect of Chonsei Loans on the Renter Housing Demand

Chonsei loans have continuously expanded to support housing stability of low-income households during periods of rising Chonsei prices. However, from a dynamic perspective, the increase in Chonsei loans may lead to excessive housing consumption, stimulating demand and potentially driving up Chonsei prices to exacerbate housing instability for low-income households. An analysis of the use of Chonsei loans suggests that, in addition to individual effects on submarkets, demand spillovers among submarkets may also occur. Based on estimations for a demand model of renter households in the Seoul metropolitan area, the result shows robust demand increases across different age groups, supporting that Chonsei loans could arouse demand growth. Therefore, it is necessary to actively monitor the system to prevent unchecked expansion of them and to gradually reduce the volume of them in order to ensure housing stability. Additionally, efforts should be needed to improve market inefficiencies from a long-term perspective, such as incorporating Chonsei deposits, which belong to a non-institutional debt, into the formal financial system.