Unreal estate

“Property prices go up and down, but the main thing is not to pay them a blind bit of notice, unless and until you have a good reason to move. I learnt that a rising price will not rise forever; that when prices stop rising, it will be difficult to sell your flat, because the reason the price has stopped rising is because the climate has changed. The money you have in your house is not liquid money; it’s not money which can easily be converted into something else other than your house. It’s stupid to feel richer beause the value of your house has gone up, since the resulting rise almost always isn’t money you can use or spend. If you’re going to move, you still need somewhere to live, and the cost of that place too will have gone up, so there will be no net gain from the increase in your property’s value.”

In the above passage from his book about the credit crunch, I.O.U., John Lanchester is mainly talking about the United Kingdom, where he lives. However, his remark about needing somewhere to live and the notion that property value means little in the world where most people do live has stayed with me. Elsewhere in the book he tosses off the idea that the value of your house or apartment or land is only as much as the other guy is willing to pay you for it, in the end. Read More

On home ownership

Yesterday Dr. Christian Dimmer tweeted about a Bloomberg article that covered Japan’s housing market, specifically the boost to the Japanese economy that will be brought about by sales of new homes to “echo boomers” (or “junior boomers,” as some in the Japanese media refer to them), the children of the baby boom generation. It’s a good article in that it contains lots of helpful statistics in one place. However, one number stuck out for its incongruity, at least as far as we’re concerned. In the middle of the article, the reporters state that, according to a survey taken by the housing research company Zentakuren, “about 86 percent of Japanese own their own home.” First of all, the diction is imprecise: Does this mean that 86 percent of every single person in Japan owns a home? Of course not. So what does it mean? We assume it means that the home ownership “rate” is 86 percent, but in that regard one has to understand how such a figure is reached. Most likely it means: What percentage of homes are owned by the people who live in them? If that’s what the sentence is saying, it’s a shock to us. We have been working under the assumption that Japan’s home ownership rate has been in the low 60-percentile ranks for decades, and so we double checked. Japanese reports tend to cite the Ministry of Internal Affairs surveys and the most recent one we could find, for 2006, put Japan’s home ownership rate at 61 percent. This sounds about right. Toyama’s, the prefecture with the highest home ownership rate, is 79 percent, while Tokyo’s is about 44 percent. So we looked up Zentakuren’s survey (7,145 respondents) and found that it did not register home ownership but rather how many people “wanted” to own a home.

This is very different from what the Bloomberg article implied, and doesn’t make any sense anyway. If 86 percent of Japanese people owned their own homes, that would probably mean almost all the “echo boomers” already do, so one wouldn’t be able to expect any related economic boost. But in any case, it’s a small error on the part of the writers in relation to the whole article, whose tone is upbeat in that, since housing plays such a huge role in GDP, Japan’s economy will be better off, at least in the short run. What the article doesn’t touch on at all is the previously-owned housing market. As always in financial reports having to do with housing, “house starts” are the main indicator of fiscal health, because new housing spurs construction and sales of more products. Such a statistic is only hopeful in certain contexts, such as the United States, where the population continues to grow thanks to influx of new immigrants and the families they are raising. Japan’s population is shrinking, and every new house that’s built for an echo boomer is one less older house that gets sold, and thus one less opportunity for a current homeowner to capitalize on his or her investment. Unfortunately, these sorts of statistics never figure in most financial reporting about housing in Japan, mainly because no one really knows what sort of impact it will have in the long run, but as we’ve stated many times on this blog, there are millions of vacant homes in Japan that will never be sold, and the number is growing every day. The generation after the echo boomers is already famous as a “lost generation,” meaning a good portion of them have never secured the kind of long-term employment that sustains a country which was once the second biggest economy in the world. Ten years from now, when they come of home-buying age, they probably won’t be able to afford new homes. Maybe they’ll buy older homes, which will definitely be very cheap, in every sense of the word.

Field diary: Nikko

For a while now we have been looking at properties up near Nikko, though we couldn’t tell you exactly why the area appealed to us. Subconsciously, we may have thought of it as being the poor man’s Kamakura, which is where we would like to live but can’t really afford. Since the quake it’s also been more appealing since it’s obviously very far from the ocean and though it gets quakes itself it seems to be on relatively solid ground. But mainly because we always thought it was a nice town with good people and pleasant scenery. However, any time we’d been there to check out properties it was usually outside Nikko proper, and the houses were the usual suburban-style prefab junk.

This time we went to Nikko proper. In fact, the first place we looked at was a ten-minute walk from Nikko Station. The fact that is was only ¥5 million will give you an idea of the condition it was in, but from the photos on the realtor’s website it looked salvageable. Obviously, at that price we were essentially buying the land. The house was built in the early 70s, though the second floor was a later addition.

We met the agent about a block from the property. He had taken the train up from Tokyo and rented a car, since he would be showing us another property a little further out of town. The house was located next to a makeshift parking lot to the west. To the north there was plenty of space between the house and its neighbor and the garden was located to the east; beyond it was nothing. So on three sides there was a lot more room than you might expect from this part of town, which was residential in a pleasantly diverse way. Unfortunately, as with almost all Japanese buildings, the house “faced” south, and there was barely three meters between it and its neighbor. This is unfortunate because all the windows looked out on the wall of the house next door. Since the kitchen and bathroom are always located in the north portion of a Japanese house there were no windows on that side and for some reason there were no windows to the east either. The genkan was located on the west side. So that meant the only light would come from the south, and it didn’t look like much was going to make it into the house itself.

It was in even worse shape than we thought. The agent told us the owners had only left less than six months ago, but it was difficult to believe anyone could live in such a decrepit building: moldy tatami, peeling laminate floors and paneling, buckled cabinets in the kitchen. The second floor add-on consisted of two rooms that smelled as if someone had died in them. Any renovations would cost upwards of ten million, though the place really needed to be torn down. That would cost about a million, and then a new house would run another 15 probably. The location was good, but that was too much work. Read More

Community first

The inability to sell or rent out vacant houses and condominiums is not just a concern for the owners. In many places it’s something that the community as a whole worries about, especially now with all the talk about the erosion of “kizuna” (bonds) and the attendant loss of community-mindedness, which may have been over-stated in Japan, but in any case the atomization of urban life is definitely on the increase. A neighborhood in Chiba Prefecture is actually doing something about the problem in an unusually proactive way.

In a section of Chiba City’s Mihama Ward near Kaihin Makuhari Station, residents have put together a non-profit organization called Chiba Regional Renovation Research, whose job is to rent out vacant properties at less than their market value as a means of “reinforcing communication.” The idea is not simply to find tenants, but to make the neighborhood more viable as a community. A recent article in the Tokyo Shimbun explained that collective housing in the area in question was developed by the prefectural and municipal governments in the 1960s, and now the apartments are superannuated and mostly occupied by elderly people. After last year’s earthquake, even more people moved out of the area over fears of liquefaction, which affected many coastal areas Chiba along Tokyo Bay. The NPO is made up of 107 condominium associations in the area. Their research found that out of 800 units, about 300 were empty. (The vacancy rate for all of Chiba Prefecture is about 15 percent) In most cases, the owners of the units didn’t live there and/or were unable to rent them out, but in some cases, the owners of the units could not be identified or located. Of those empty units whose owners were interviewed–245 in all–30 percent said they wanted to rent or sell but couldn’t, and in the meantime they have to pay monthly management fees and repair fund contributions, not to mention property taxes. Since many are retired, this is a big burden for them.

The condo associations formed the NPO because their membership is so diluted it has become difficult to formulate disaster and anti-crime countermeasures. The purpose of the organization is to act as a bridge between owners and potential tenants. For instance, by offering units for less than market prices they hope to attract students. They also think that some units could be used by younger families as collective daycare centers or leisure facilities for seniors. At the same time, they will promote renovations in terms of both safety and comfort, working with prefectural authorities and the construction ministry.