Longer but harder; Persistent regulatory effects of tenants’ contract renewal rights in Seoul

This study examines how tenant protection policies can generate unintended consequences in rental housing markets, particularly when regulatory design fails to account for market-specific financial structures. We analyze a natural experiment where unconditional lease renewal rights were introduced in a deposit-based rental system, demonstrating both theoretically and empirically how such policies can paradoxically increase tenant financial burdens. Our theoretical model reveals that extending contract durations in markets where large deposits serve quasi-mortgage functions creates incentives for landlords to demand higher upfront payments as compensation for extended capital lock-in periods. Using Regression Discontinuity in Time (RDiT) and Propensity Score Matching (PSM) methods, we document not only immediate market disruptions but also the amplification of adverse effects over time—a phenomenon rarely captured in policy evaluation studies. Specifically, we find that deposit differentials between renewed and new contracts increase fivefold over successive renewal cycles. These findings contribute to the broader literature on regulatory unintended consequences by demonstrating how well-intentioned tenant protections can become self-reinforcing market distortions. Our results suggest that effective housing policy design must consider both the dynamic nature of market responses and the interaction between regulatory interventions and existing financial arrangements. While our empirical setting involves Korea’s unique Jeonse system, the mechanisms we identify — particularly the tension between contract duration extensions and deposit-based financing — offer valuable insights for housing markets worldwide where security deposits represent substantial financial commitments.