Local governments are starting to realize the disadvantages of tower condos and doing something about it. According to a Jan. 3 article in Tokyo Shimbun, last July the city of Kobe implemented regulations that would limit construction of new condominium complexes in the city center. As mentioned in a previous post, last fall’s kanto area typhoons brought home to the residents of at least one tower condo in Kanagawa Prefecture the truth that high-rises were especially vulnerable to storms in ways residents hadn’t counted on. Western Japan has had more immediate encounters with typhoons in recent years, and that seems to have been part of the reason for Kobe’s new regulations, though the main impetus may be purely economical.
The new law covers land to the south of Sannomiya Station. For the 22 hectares closest to the station, all new residential construction, including single-family houses, has been banned. Then, in the surrounding area, for any plots of land that are 1,000 square meters or more in size, the capacity rate for new residential construction is limited to 400 percent. That means, for instance, if a building with a footprint of 500 square meters is built on these plots, it can be no taller than 8 floors. Tower condos are defined in Japan as being at least 20 floors, and usually they contain at least 100 units. Currently, Kobe has 69 high-rise condos, 24 of which are located in Chuo Ward, which is where Sannomiya Station, the main transport hub, is situated.
One of the reasons for these restrictions is that the city can’t provide all the services required for tower condos. The trend at the moment is for younger people to move as close to city centers as possible so as to be nearer to their jobs. They are willing to pay for such proximity because they understand, having grown up in the suburbs watching their fathers commute two or three hours a day to and from work, what that commute does to their lives. And a lot of these young people have families, but Kobe can’t provide enough schools in the city center. At the moment, in fact, many existing schools in the area have had to provide prefabricated classrooms off-site, because there is no land left in the city center to expand schools or build new ones, and one of the reasons is that there are so many tower condo complexes taking up room. For the same reason, there aren’t enough stores or other commercial facilities and, most significantly, there is a paucity of employment, which means, ironically, that the city center has become a kind of bedroom community for surrounding areas, including Osaka.
And there’s one more reason for limiting new residences: the vacant housing problem has hit Kobe especially hard. This fact would seem to be counter-intuitive since developers want to build new condos in the city center—that’s why there are so many. But by the same token, no one seems to want to buy older houses or apartments. A lot of rental apartments are vacant, too. The vacancy rate in Kobe is 14.2 percent, and in Hyogo Prefecture it’s 13.7 percent, higher than the national average of 13.6 percent. Kobe’s Nagata Ward has an 18 percent vacancy rate. One of the reasons for these high rates seems to be the sustained demand for high-rise condos. Kobe started building them in the 1990s. According to Tokyo Shimbun, as of 2018, there were 1,096 tower condos throughout Japan, and by the end of 2020, there will be 1,371. More than half are in the Tokyo Metropolitan area, but 30 percent are in the Kinki region, which includes Hyogo Prefecture. Because of the slack economy, tower condos became particularly popular in the 2000s, when real estate prices had bottomed out and developers seized on urban land that was being sold for a loss by businesses that no longer needed the land for things like company dorms. These developers, taking advantage of easy zoning rules, built towers because that way they could maximize their investment. That’s one of the reasons why large cities like Tokyo, Osaka, and Kobe have seen steady increases in population while suburbs and the countryside have seen a steady deterioration of their tax bases. But now this influx has resulted in saturation that the city governments can’t handle.
Kobe isn’t the first major city to implement such regulations. Yokohama already limits condo sizes for the same reason. Tokyo hasn’t because it still has a huge waterfront area that the prefecture wants to develop more. But eventually, and sooner than later, the vacant housing problem will overwhelm the desire for tower condos, maybe even before the inherent problems of tower condos become evident to owners and potential owners alike. Even Tokyo’s 23 wards is seeing a vacancy rate of 10.4 percent, which, granted, is lower than the national average, but too high for such a metropolis where land prices are still dear. (For the record, Yamanashi Prefecture has the highest vacancy rate, 21.2 percent, mainly because it has lots of vacation houses) Chiba and Saitama, two of the main bedroom prefectures for Tokyo, have the lowest vacancy rates in the country, but that’s only because they have so many residences. In terms of vacancy rates, they’re the lowest, but in terms of pure number of vacant homes, they’re both in the top ten. And Tokyo is even higher, with about 800,000 empty houses and apartments.
What this means for Kobe isn’t completely clear, but it could point to the bottom falling out for real estate prices. Last April, Nikkei ran an article that discussed the rising vacancy rate in the Kansai region even as population increases. Kobe recognized the problem and started actively encouraging people with abandoned properties to demolish their homes if they were considered unrentable or unsellable, for whatever reason. This encouragement was in the form of a subsidy: one-third the cost of demolition up to ¥500,000. Wakayama city to the east was even more desperate, offering subsidies for two-thirds the cost of demolition. And since one of the reasons why people don’t demolish vacant houses is that they will lose the special property tax break for land with structures on them, Kobe is waiving that tax break for “special” situations, meaning abandoned houses. In other words, if the city designates an abandoned house as being “special” (tokutei), the owner doesn’t get the tax break and will pay up to six times more in property taxes for the land under the house. Consequently, there is no reason to not demolish the house, though if the land itself is not assessed very high it may still not be worth it to spend two million yen to tear it down. It’s all relative when the real estate market is this screwy.