Part I. Introduction: The Charter System's Apocalyptic Crisis and the Modernization of Financial Risks

1.1. Diagnosis of the fundamental vulnerabilities of the charter system and the background of the crisis

the charter system is a unique rental system in Korea that has contributed significantly to affordable housing stability, but its structural vulnerabilities have recently emerged as a serious social problem. according to our analysis, the system is structured to be sustainable only if housing prices continue to rise, and it is inherently fraught with default risk, where tenants cannot get their security deposits back if prices fall.

the downward trend in rental prices that began in the second half of 2022 has exacerbated the 'backlash' phenomenon, and this risk is forecast to continue through 2024. as this market instability has become a reality, the total amount of rental deposit return guarantee accidents of the Housing and Urban Guarantee Corporation (HUG) has exceeded KRW 11 trillion over the past five years, snowballing the financial burden on public guarantee agencies. in particular, the amount of warranty accidents in the month of September 2025 totaled KRW 109.8 billion, the largest amount ever recorded since the product was launched, clearly showing that the financial risks of the rental system are accelerating.

1.2. Analysis of risk indicators for canned subletting: instability in the non-apartment market

when the rental rate (the ratio of rental price to sales price) exceeds 80%, it is categorized as a 'tin can rental' and the risk of non-return of the tenant's deposit skyrockets. the instability in Seoul's villa (townhouse/multi-family housing) market is particularly acute, with the average villa rental rate across the city reaching 82.0% in September, already above the critical level. localized risks are even more pronounced, with rental deposits reaching levels exceeding 90% of the sales price in densely populated areas such as Gwanak-gu (91.9%) and Gangbuk-gu (91.2%), making the risk of canned rentals a reality.

in response to this growing risk, the government has strengthened the requirement for HUG rental guarantee insurance to prevent rental fraud, lowering the threshold from 100% to 90%. the intention was to secure the financial health of public institutions and hedge public risk.

however, it has had a paradoxical effect: the tightening of the guarantee requirement, coupled with the lowering of the threshold, has resulted in higher rental rates, excluding the highest-risk, low-cost units from the guarantee. This means that the tenants most at risk - the poor and vulnerable living in villas - have been pushed out of the protection of the public safety net. the assessment is that attempts to manage structural risks in the rental market have had the side effect of shifting risk to the individuals least able to afford it, rather than stabilizing the market as a whole, which is likely to become a social problem in the future.

state of housing market risk: Trends in rental rates and HUG-insured incidents (as of September 2025)

indicator Itemlatest statistics (September 2025)analysis and significanceprimary Source HUG monthly insured losses kRW 109.8 billion (largest ever) increasing rate at which financial risks in the charter system are materializing 4 average rental rate of Seoul villas 82.0 exceeding the risk classification standard for canned charters (80%) 4 average villa rental rate in Gwanak-gu, Seoul 91.9 maximized local risk and increased likelihood of non-return of deposit 4 monthly rent share from January to September 62.6 accelerating structural unwinding of the charter market 6

1.3. Expectations of higher home prices persist despite continued regulations

despite the government's successive real estate measures (6-27, 9-7, 10-15), consumers' expectations of higher house prices are still driving the market. according to the results of the October Consumer Sentiment Survey released by the Bank of Korea, the House Price Expectations Index jumped 10 points month-on-month to 122, the highest level in four years. a reading above 100 indicates that more respondents expect home prices to rise in a year's time.

during the June 27 measures, the index temporarily fell (from 120 to 109) as mortgage limits were restricted, but it quickly rebounded afterward, suggesting that the market's upside expectations overwhelmed the policy's effectiveness. this shows that while strong regulatory measures may cause a short-term contraction in trading, they do not have a significant impact on the underlying market's bullish sentiment.

Part II. A Deep Dive into Gap Investment Regulation: Policy Intentions and Market Paradoxes

2.1. A Regulatory Portfolio to Block Speculative Demand (Gap)

in response to the escalating price volatility in the real estate market, the government has put in place a strong regulatory portfolio through 10-15 housing market stabilization measures. the core of these measures was to block speculative demand and reorganize the market toward real buyers.

first, we designated 12 areas across Seoul and Gyeonggi Province, including Gwacheon and Seongnam, as regulated areas and land transaction license zones, imposing a live-in obligation for home purchases. this measure signaled a strong policy intention to prevent the practice of "capital gains without living in a sublet," a key technique of gap investing. Second, the mortgage loan limit for high-priced homes was further reduced to KRW 1.5 billion for homes valued at KRW 1.5 billion to KRW 2.5 billion, and KRW 400 million for homes valued at KRW 2.5 billion and above, and the stress DSR rate was increased. third, the BOK announced that it will supplement lending regulations by considering applying DSR to all residential loans in the metropolitan area and regulated areas. the Korea Development Institute (KDI) has also warned that suddenly applying DSR to whole-household loans could push people into the rental market, and suggested a balanced approach, saying that it should be applied gradually after controlling loan growth.

2.2. Changes in market liquidity triggered by curbing gap investments

6-27 While the trading volume that briefly contracted immediately after the lending regulation rebounded over time, it is noteworthy that the demand for gap investments was centered in unregulated areas such as Seongdong-gu and Mapo-gu in Seoul.this suggests that, rather than extinguishing liquidity in the market, the stricter regulations created a "balloon effect" that shifted investment demand to unregulated or less regulated areas.

the policy goal of gap investment regulation was to stabilize house prices by curbing speculative demand in the short term. however, these regulations had unforeseen structural ramifications: gap investments have served as a low-cost lever for landlords to use rental deposits to buy homes and supply rental units. When gap investments were blocked, landlords could no longer use rental deposits as interest-free leverage.

at the same time, stricter HUG guarantee requirements and increased risk of reverse-letting introduced landlords to the potential liability risk of 'deposit return obligations'. This shift in the landscape significantly reduced the incentive for landlords to let sublets and made the transition to renting, which provides a predictable and stable cash flow, a much more financially sensible option. thus, while policies aimed at discouraging gap investing may have reduced demand for home purchases in the short term, in the long term, they provided a structural driver that drove 'sublet providers' out of the market, reducing the number of sublet units themselves and allowing rents to fill the void, and in turn, directly catalyzed the acceleration of the 'subletization of subletting'.

Part III. The Acceleration of Rentalization: Data Analysis of a Structural Transformation

3.1. Statistics on the overwhelming shift to renting

recent statistics clearly show that the Korean residential rental market is rapidly transitioning to the era of renting. in September 2025, the share of month-to-month rent (including guaranteed rent and reverse rent) accounted for 65.3% of the nation's total rent transactions (230,745). this shows a stark contrast by tenure type, despite the increase in sublet transaction volume. charter transaction volume is down 1.9% compared to the same month last year, while rent-to-own transactions have surged 38.8%.

these trends aren't just a blip, they're solidifying into a structural shift. year-to-date, the share of rental transactions has steadily increased every year, starting at 43.0% in 2021 and reaching 62.6% this year. the government has also officially recognized this shift. in the National Audit, Minister of Land, Infrastructure, and Transport Kim Yoon-deok said, "The trend (of renting out charters) has been going on for quite a long time," and diagnosed the current situation as the "rent era. however, the government diagnosed the main factors of this change as changes due to market trends such as "charter fraud" and "changes in the preferences of renters.

3.2. Analyzing the economic incentives of landlords: Why the shift to renting?

tighter gap investment regulations and increased financial risk have had a decisive impact on landlords' decision-making. Gap investment regulations (tightening lending and enforcing live-in tenancies) have made it more difficult for landlords to utilize charter deposits to purchase additional units, erasing the leverage advantage that the charter system offered.

furthermore, the rising tide of repossessions and the spike in HUG guarantee claims has increased the potential liability risk of non-repayment of deposits for landlords. in this uncertain and risky financial environment, landlords are more likely to favor "stable cash flow (rent income)" over "capital appreciation expectations". rental income is a much more predictable and financially secure option, and it frees them from the large lump-sum repayment obligation of returning security deposits.

3.3. Rising rental prices and increasing housing affordability for renters

amidst the acceleration of "subletting," rental prices have been rising steadily as rental demand has been concentrated in the rental market. according to the Korea Real Estate Agency, the average monthly rent for an apartment in Seoul reached a record high of 1.44 million won in September. seoul apartment rents have steadily risen from 1.34 million won in January of this year, especially since the government announced the 6-27 Lending Regulation in June, which capped mortgage lending limits.

this means that rental demand has inevitably flowed into the rental market as it has become more difficult to obtain a loan. the Seoul Apartment Monthly Rental Price Index also reached 101.51 last month, the highest level since its inception in 2015.

in conclusion, while the gap investment regulation had the net effect of curbing speculative demand, it had the unintended side effect of shrinking the supply of rentals and spiking renters' demand for rentals. renters faced limited options for rental housing due to the restrictions on charter lending and increased HUG guarantees, which pushed them into a market where they were forced to pay skyrocketing rent prices. renters ended up facing the double whammy of (1) increased risk of subletting (guarantee risk) and (2) increased cash outlays for switching to renting (housing cost burden), suggesting that instead of controlling the financial risk of owner-occupiers, regulations are working to disrupt the cycle of residential mobility and undermine the housing security of the poor.

share of housing sublet transactions by type nationwide and changes in rent prices in Seoul

categorycumulative share in 2021cumulative share from January to September 2025september 2025 Monthly Rent Transaction Growth Rate (YoY)average monthly rent for Seoul apartments (Sept. 2025) monthly rent (including security deposit) 43.0 62.6 +38.8 1.44 million (highest ever) charter 57.0 37.4 -1.9 N/A

Part IV. Policy Recommendations for Securing Long-term Housing Stability and Review of International Examples

4.1. A soft landing plan for the charter system: institutionalization of Risk Management

given the confirmed instability of the rental system, institutionalization of risk management is essential for tenants' housing stability. the study suggests that it is desirable to systematically reflect the risk of the guarantee by expanding the return guarantee for charter deposits and making it mandatory to sign up for a return guarantee when renting a house. in addition, it is necessary to realize the guarantee fee rate, which is currently low compared to other guarantee products, by considering the actual loss rate. however, the realization of the guarantee rate should be accompanied by short-term support measures for vulnerable groups in case the burden of guarantee fees for low-cost housing increases.

furthermore, it has been suggested to consider a mixed guarantee system that applies the LTV regulations for mortgages to the entire housing unit included in the rental and utilizes an escrow system to protect the tenant's deposit. meanwhile, it has also been suggested that the government should consider with the financial authorities how to 'pave the way' for liquidity by improving existing regulations for the portion of the loan that defer the return of the rent in order to counteract the situation. apart from curbing speculation, liquidity support for the risk of reversed rents that have already occurred can contribute to preventing homeowners from going bankrupt and protecting renters' security deposits.

4.2. Comparison of housing stabilization schemes in developed countries overseas

as subletting becomes a structural trend, there is a growing need to examine the institutional arrangements in developed countries for tenants' residential stabilization.

major countries have long operated contract renewal rights and rent control systems to maximize tenants' residential stability.germany and France have virtually unlimited renewal rights. in France, three-year contracts are the norm, while in Germany, open-ended leases are the norm, and in both countries, tenancies cannot be terminated without good cause, which increases tenancy stability.

as for rent caps, Western industrialized countries often cap initial rents as well as contract renewals, effectively preventing rent spikes when tenants change.for example, the city of Berlin, Germany, implemented a five-year rent freeze starting in January 2020 to prevent rent spikes, and initial rents cannot exceed 10% of the surrounding market rate.the Paris region of France is also taking an aggressive approach to rent control, with a law in place since 2015 that regulates rents for new leases.

these overseas examples suggest that Korea, which is entering the age of renting, should urgently consider introducing long-term tenancy rights and rent control systems to ensure tenants' housing stability.