Housing markets work best when the line doesn’t always go up


These days, when Japan’s housing market makes headlines, it’s usually for the wrong reasons: the millions of vacant homes across the country, perhaps, or the notoriously poor investment that buying a home can demonstrate. A home can often be worthless by the time a buyer has paid off the mortgage.

But look at it from a housing perspective as a roof over people’s heads rather than a store of value, and Japan starts to look like a hit.

Even in these post-Covid times, the country faces no accessibility crisis. Rents are stable – one of the main reasons inflation is so relatively low – and housing can be found for almost any budget. Few have ever needed to stand in line to view an apartment, and even now banks are vying with each other to offer increasingly lower adjustable-rate mortgages to buyers. Tokyo adds three times more homes in a typical year than the whole of the UK, which has five times the population.

Like many investments, what you have to abandon is the idea that the line always goes up.

The message has been spread. As some other locations in Asia look less attractive, obviously Hong Kong and mainland China in the Covid Zero era, wealthy buyers are starting to look at properties in Japan as potential low-yield investments or stopgap plans. What it might lack in returns it can make up for in ease of access. Japan has so few restrictions on foreign land ownership that it may seem comical, with the government only recently starting to legislate foreign purchases of land near sensitive locations, such as military bases.

While all of this is helping new apartment prices in Tokyo finally reach bubble-era highs of more than 30 years ago, they have yet to materialize in the rental market:

Sure, wages in Japan have continued to stagnate over the past decade, but residential real estate still looks cheaper to buy than in countries where property values ​​have risen more than paychecks:

Seen from Tokyo, the sight of hundreds of people queuing to view a small number of vacant properties in London, where the mayor wants to freeze rents amid a ‘cost of rent’ crisis, or the affordability disaster US housing and its knock-on effects on inflation, may sound really strange.

At its core, there is a simple trade-off between supply and prices: for 50 years, Japan had more homes available than people to fill them. Homes purchased in Japan probably won’t increase much in value, save for the most astute and lucky buyers in select locations. Owners also tend to prefer newer properties, which makes sense given the low quality of older stock built during the great postwar rush. Building code changes in land highly vulnerable to earthquakes and other disasters are also encouraging buyers to favor new. This works well for supply, but means that prices cannot be expected to improve all the time.

Legislation(1) encourages construction that meets this demand. Despite what politicians might say elsewhere, even in typically Japanese slow-moving housing it has proven to be a problem solvable through legislation. The central government has facilitated construction for decades, with the power and size of the developer and construction industry undoubtedly playing a role. The 1997 deregulation is credited with a boom in large apartment blocks of 20 stories or more known as “towers,” a move that has put new luxury condominiums in emerging urban neighborhoods within reach of the ordinary worker.

In recent years, further impetus has come from the rise of the “power couple”, presumably elite dual-income families with around 14 million yen ($100,000) in combined salary. With Japan explicitly encouraging low interest rates and providing easy access to fixed-rate mortgages, a double loan for an apartment costing nearly $1 million isn’t out of reach, even if between Japan’s low wages and the yen weak, power couples could make no more than the current equivalent of just $50,000 each, well below the average individual salary in the United States.(2)

In 2002, Prime Minister Junichiro Koizumi’s administration passed his “Urban Renaissance” policy, which placed much more power over zoning in the hands of the central government, incentivizing private companies to redevelop areas that had seen better days . This deliberately disenfranchised local governments, a source of complaints about slow approvals; officials elsewhere facing such issues might take note. One more thing: be prepared to part with iconic architecture, as fans of the Nakagin Capsule Tower learned earlier this year.

Of course, all is not roses in Japan’s garden. Oversupply may be preferable to the alternative, but vacant homes nationwide are still a problem that could be addressed with incentives to demolish or sell as second homes. There will be a growing need for new communities to support an aging population in the twilight years. Declining rural communities have a once-in-a-generation pandemic-inspired opportunity to attract new talent moving into the country, something the government could do more to encourage. And for all the relative affordability of mortgages, it’s still largely the privilege of the full-time wage earner; the growing number of non-full-time workers may find it unnecessarily difficult to get a loan approved.

However, governments around the world facing cost-of-living protests should ask themselves: What is a country’s housing stock good for? A store of value for those who climbed the ownership ladder first – or something closer to a social asset, which shouldn’t permanently increase in value more than cars, roads or rolling stock?

More from Bloomberg’s opinion:

• Buy that house. Your retired self will thank you: Alexis Leondis

• Singapore house prices can’t keep defying gravity: Andy Mukherjee

• No tears for an iconic Tokyo Tower: Gearoid Reidy

(Corrects third paragraph to show that UK has five times the population of Tokyo.)

(1) Many of these normative choices are detailed in Emergent Tokyo, a must-read for architecture lovers that explains how both organic systems and planning helped Japan’s capital city become Tokyo in such a distinctive way.

(2) The OECD lists the US median wage at nearly $75,000, while Japan is less than $40,000.

This column does not necessarily reflect the opinion of the editorial board or of Bloomberg LP and its owners.

Gearoid Reidy is a Bloomberg Opinion columnist covering Japan and the Koreas. He previously led the breaking news team in North Asia and served as deputy head of the Tokyo office.

More stories like this can be found at bloomberg.com/opinion

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