Impact of Expanding Jeonse Loan Guarantees on Jeonse and Housing Sales Prices

The Korea Housing Finance Corporation (HF) expanded its public guarantee supply for jeonse loans substantially in recent years, prompting a growing debate over its spillover effects on both the rental and sales housing markets. This study empirically examines the impact of this expansion on the monthly growth rates of national jeonse and housing sales price indices. Using a seemingly unrelated regression model, we find that an increase in guarantee supply significantly increases both jeonse and sales prices, with a notably stronger effect on the latter. The Wald tests confirm that this difference is statistically significant, suggesting that Korea’s structural connection between the jeonse and sales markets amplifies the transmission of guarantee-driven shocks to the sales market. Furthermore, the structural equation model results reveal a statistically significant indirect pathway: the guarantee expansion directly raises jeonse prices, which in turn accelerates sales price growth. These findings indicate that public guarantee programs, while designed to ease tenants’ financial burdens, also generate systemic spillovers to the broader housing market. Overall, this study highlights both the intended and unintended consequences of the guarantee system. While this policy enhances tenants’ short-term liquidity, it may inadvertently inflate jeonse and sales prices in the long term.