The Impact of Shocks to Interest Rates, Housing Prices, and Credit Supply on the Korean Housing Rental System: A Focus on Chonsei Defaults

The Chonsei (also spelled Jeonse) rental system—where tenants pay a large, up-front deposit instead of monthly rent—generates complex linkages among interest rates, housing prices, credit supply, and Chonsei defaults—failures to return deposits to tenants. Using a Structural Vector Autoregression (SVAR) model with monthly data from 2010 to June 2024, this study examines the intensity and persistence of these interactions, revealing four key findings. First, interest rate shocks exhibit an immediate and enduring impact on housing and financial markets, significantly increasing Chonsei defaults. Second, the relationship between house prices and Chonsei prices is asymmetric—declines in house prices have a stronger and longer-lasting effect on Chonsei prices than vice versa. Third, financial distress spreads primarily through underwater risk, where house prices fall below Chonsei deposits—and rollover risk—where declining market Chonsei prices restrict landlords’ liquidity. Fourth, Chonsei defaults exacerbate the financial distress cycle, tightening credit, further depressing housing prices, and amplifying systemic risks through the financial accelerator mechanism. This study offers new insights into systemic risk dynamics by presenting an integrated analysis of the triggers and propagation pathways of Chonsei defaults. The findings highlight the need to safeguard the rental housing market during interest rate hikes, coordinate housing market stimulus with rental dynamics, and strengthen risk-based guarantee schemes to mitigate systemic risk and stabilize the housing market.