Condomanic-depressive

DSCF2154Last week the media reported that the Ministry of Land, Infrastructure, Transport and Tourism was devising a plan to limit the number of abandoned houses and apartments in Japan to no more than 4 million by fiscal 2025. As of 2013, the year the results of the last ministry 5-year survey were released, the number of vacant homes in Japan was estimated to be 8.19 million, about 40 percent of which–3.18 million–were not on sale or for rent. At the present rate, the number of abandoned abodes would rise to 5 million by 2025, so the ministry has decided to put into effect measures to bring down that number. They will announce these measures in March.

According to reports, the plan would involve “putting some abandoned houses and apartments back on the market and removing others,” as well as “offering such houses and apartments to low-income earners and families with children.” In addition, the government would also promote “the replacement of aging condominiums.” Any of these measures would require a much larger existing home market, which was worth about ¥4 trillion in 2013. The ministry thinks it can boost it to ¥8 trillion by 2025 and increase the remodeling and renewal market from ¥7 to ¥12 trillion. Since there would be no attendant increase in the population, the new home market would probably have to decrease in order for these targets to make sense; that and salaries would have to see a boost.

Since new housing starts has always been a chief economic motivator in Japan, it’s difficult to imagine that the government would do anything to discourage new home construction, and as long as it’s a priority it will be difficult to reduce the vacant home problem. For one thing, only new home buyers get tax breaks. More to the point, while the problem of abandoned single-family homes can be addressed in a relatively direct fashion–either fix them up to make them sellable or tear them down–the problem of abandoned units of collective housing is not so simple. For one thing, in order for a building to be rebuilt or “replaced,” four-fifths of the owners of the building’s units must approve, and that’s a hard portion to reach, especially given the fact that a lot of condo owners do not live in their units but rather rent them out. According to Yomiuri Shimbun, the government is thinking of changing the law so that absentee owners of condo units can be ignored if for whatever reason they do not participate in the vote for rebuilding.

But the problem goes deeper. The 2013 survey found that there were 6.13 million units of collective housing in Japan, and now there are about 1.4 million units that are over 40 years old, which is considered the age at which rebuilding is supposed to take place. However, only about 250 apartment buildings have actually been replaced or rebuilt since 1975 throughout Japan. By 2036, there will be 2.77 million units over 40 years of age, so if the government really wants to encourage the rebuilding of condos and apartments, they have to start right away. And the older a unit is, the more likely it will be abandoned. The portion of all condos now that are abandoned is 2.4 percent, but that rises to 10 percent for condos built before 1974, and 15 percent for units built before 1969.

And a good portion of these abandoned apartments are in Tokyo, where many people believe demand for any kind of apartment is high. The 2013 survey showed that there were 518,000 vacant apartments in Tokyo, which means 64 percent of all the vacant homes in the prefecture were non-wooden condominiums and apartments. Of these, 423,000 were intended as rentals, the rest as kojin jutaku, or owner-occupied condos. Many of these rental units may not have been abandoned at the time of the survey, but simply “between tenants,” so to speak. According to the housing services company Homes, the vacancy rate for rental properties in Tokyo is 14.5 percent. Counter-intuitively, this portion increases the closer you get to the city center. The vacancy rate for rental properties in Chiyoda Ward is 36.5 percent; for Chuo Ward 27 percent, the main reason being that rental units in the central wards tend to be both superannuated and expensive, a combination of factors that doesn’t make sense from a market standpoint. Seventy-two percent of the vacant condos/rental apartments in Tokyo are in the 23 wards. Likewise, there are 58,500 vacant single-family homes in Tokyo, 49,600 of which are located in the 23 wards. So vacancies are not just a problem in the suburbs and the countryside. They are also a problem in the large cities, and the same goes for the three prefectures surrounding Tokyo. About half the vacant condominiums in all of Kanagawa Prefecture are in Yokohama, the capital.

In order for the government to have any sort of effect on the abandoned home issue, they have to think first of collective housing, which means getting developers involved because without developers rebuilding old condominiums is almost impossible, especially in the big cities. As we’ve explained elsewhere in this blog, the monthly shuzenhi, or repair fees that condo owners pay toward eventual rebuilding, is never enough for such a huge undertaking, so you need developers who can redesign the buildings in order to add on more units for sale to cover the cost of the rebuild for all the owners; or at least, for those who remain. Another problem the government seems to be conveniently ignoring is that all these condos with abandoned or otherwise vacant units still have people who live in them with the idea of staying there the rest of their lives. As more units become empty there are fewer funds going toward the entire building’s maintenance, as well as fewer funds for rebuilding down the line. It seems almost criminal that when housing plans were devised many years ago these contingencies weren’t taken into consideration, but we guess they just never counted on the population going down.

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7 comments

  1. Zeke · January 24, 2016

    If the govt. want positive change, the first thing that needs to be done is to lower the tax on the sale of property so that more comes on the market. This is the biggest disincentive to people unloading properties. Also, in the face of a rapid decline in population, and the different housing needs of an increasingly elderly populace, a serious re-think is in order. But why can’t the government simply leave it up to the private sector to address these issues, and provide loan guarantees for the builders and assistance as needed by the tenants? Every time this govt has gotten involved in market making, from the securities bubble to the jiage disaster, it has ended in tears.

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  2. Simon · January 27, 2016

    You’d think with the number of refugee applications that Japan gets, they could accept a whole lot more than two dozen and fill some of these empty apartments in extra-suburban areas. It’s not like they’re losing anything, since rent isn’t being paid anyway, and once the refugees are up to speed with the language, etc., they’ll be paying taxes, their kids will be assimilating, etc., etc.

    But that would involve letting filthy foreigners into glorious Nippon, so it’ll never happen.

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  3. Dan Cooper · April 7, 2016

    I would never guess that Japan has a problem with vacant housing, and especially vacant condos in the city center. I guess that after all it’s not about the property position rather the disposition. Well I’m not sure how it works there, as I said I am quite surprised to read this information, but this whole could be caused by the government (no, I am not after some conspiracy). The home-buyers and condo-owners are imposed on by huge taxes, for starters and it doesn’t stop at the renters, or the unit owners but the whole condominium building owners are often required to fulfill certain measures, that arose long after the building was finished and their incorporation can be liquidating for them. Although I am for equality by all means and I acknowledge that disabled persons life is hard, all the extra measures imposed by government in their name are sometimes one of the reasons.

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  4. abovetheglen · July 15

    Sorry, it maybe off topic, but I wondering why apartments too have life of 30 odd years?
    Is it something structurally wrong with them? It’s hard for me to see what can possibly go wrong with cement…

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    • catforehead · August 19

      Apartments have longer lives than single-family homes in Japan, but developers and the industry tend to “recommend” that major renovations to entire buildings be carried out after 30 years, which is why condo owners have to pay a mandatory monthly “repair fee” (shuzenhi), which goes toward this renovation. Usually, the structure of the building is OK, but the repairs cover things like plumbing, electrical work, facades, and stairways: common features that can break down over time. As we’ve said elsewhere on this blog, however, often the repairs cost much more than what the fund can cover, so owners have to pay more if and when the repairs take place, and the longer you wait, the more expensive it tends to be. Of course, the owners association has to take the initiative to have these repairs done, and usually they put it off because it’s a huge hassle.

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  5. Z Ahmed · January 9

    Can you clarify more about the tax reduction for residential homes? Is it only for the first people who buy the homes, or the land? If a home is sold and bought by someone else, do the new owners get the tax benefit? If a home is demolished and rebuilt, can they get the benefit? Do landlords get the benefit?

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  6. catforehead · January 9

    If you buy a new house or condo in Japan, you can deduct the interest on your loan on your national income tax return. There is no such deduction for loans taken out on used homes. Regarding property taxes, as long as the land you buy has a structure on it, it will be assessed at one-sixth its nominal value. Once the structure is removed, the value of the land for assessment purposes goes back to “normal.” Some local governments are thinking of voiding this tax break for houses that have been vacant for a certain number of years in order to prod owners into somehow disposing of the vacant houses.

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