The Lie of the Land

Here is another chapter from our unpublished book about housing in Japan based on our own experience of trying to buy a home. This one is about residential land usage.

Example of a private road built for a future fukurokoji housing development

“It’s about the size of a cat’s forehead” – proverbial Japanese rejoinder when asked how much land a person owns

The real estate agent picked us up at the train station in a company car with long scratches on the side, probably inflicted during attempts to park in tight, unfamiliar spaces. We drove to the property through dense suburban sprawl overshadowed by pylons and interrupted by small plots of farmland. 

The two-story house had royal blue siding and was sixteen years old. The owner moved out two years ago. The wallpaper was discolored, the laminate wood floors spongey, the second floor “veranda” filled with debris. The price: ¥5.8 million. We estimated it would take at least ¥6 million to make it livable, but ¥12 million for the whole thing seemed too much. Moreover, anyone who bought the house would have to assume the lease for the land, which was ¥38,000 a month.

The agent explained that the same landlord owned the property under the other four houses on the street. The owners all had them built at the same time and paid the same rent. The leases were 50 years, which meant the owner of the blue house was still paying rent even though he didn’t live there any more, and would continue paying rent until he found someone to buy the house and take over the lease. He originally wanted ¥12 million, but had come down to ¥5.8 million about a year ago. We asked what the options were if he couldn’t find a buyer.

“Oh, he could easily rent this place, depending on how much he asked,” the agent said. “Many people in this situation do that.”

This concept of owning a house on rented land, in Japanese called shakuchiken, isn’t uncommon. According to the land ministry, between 1993 and 2007, 35,492 single-family homes and 18,937 condominium units were built on rented land, a trend that peaked in 2001, when many companies in the Tokyo Metropolitan area starting selling off property, fueling a development boom characterized by cheaper condos. When prices rose after 2005, shakuchiken started becoming popular again. The agent said that the number of people building houses on rented land was increasing, “but you don’t see so many for sale.”

As a rule, the value of homes in Japan depreciates rapidly, but land is still expensive, and not just in urban and suburban areas. Because of usage laws that make it difficult to shift land designated for agriculture to residences, even the countryside can be costly. 

We had decided to check out shakuchiken after talking to a friend, also self-employed, who had a house built on rented land seven years earlier. He and his family wanted to live in Kamakura, the trendy center of traditional culture located on the Miura peninsula just south of Tokyo, but were looking to rent since they didn’t think they could afford to buy a house there. A real estate agent directed him to a plot of land being developed by a housing company. The plot was owned by a local Buddhist temple.

“This company finds land and then contracts with the owner to build and sell houses on it,” he explained to us. “Our lease is for 20 years, and we deal directly with the temple.” He paid ¥16,300 a month for the 209 square meter plot, which is ¥2,000 less than what he paid in the beginning. The house itself cost ¥38 million and our friend said he could never have afforded it if he also had to buy the land. While he doesn’t pay tax on the land, he does pay a tax on the house.

Since the lease is for 20 years, his deal is what is called kyuho-shakuchiken, indicating it’s a lease according to the “old law.” Under such agreements, it is legally difficult for the landlord to ask a tenant to leave if the tenant doesn’t want to, even when the lease expires. In 1992 the government revised the law to allow landlords more flexibility, and also approved teiki shakuchiken, or “limited” leases that have a set time period of 50 years, after which the tenant must abandon the plot and remove at their own expense anything they put there. This law benefits the landowner more than the homeowner, and as a result more landowners have subsequently offered properties for rent. 

Developers also used the new law to convince landowners to build multi-unit residences and then collect land rent from buyers. Non-profit organizations like temples and hospitals tend to own a lot of undeveloped land in Japan since they are tax-exempt. In many cases, developers themselves sold condos on land they owned and then rented out to the condo buyers. In the Tokyo area, condos on rented land cost about 30 percent less than condos on land collectively owned by the residents. The one catch is kaitai junbikikin, a fund accumulated to pay for the demolition of the condo after the 50-year contract is up. In Tokyo, the “deposit” for such a fund, depending on how many units are in the building, is about ¥8 million per condo. Another demerit is that the older the contract, the more difficult it may be to sell a house or condo, since the new owner will have to assume the lease with a shorter period remaining until they have to have the home destroyed. 

But this was all theoretical since the law was only 20 years old when we were looking ourselves, which means the oldest teiki shakuchiken case still has thirty years until expiration, and nobody knew what Japan’s housing situation will be like in 2042. Many who rent out land to homeowners bought their properties during the inflated bubble period of the 1980s and are simply waiting for the value to go up before they sell, but experts agree that land prices will never reach those heights again. We’ve heard of cases where landowners break whatever contracts they have with tenants and offer to sell them the land. The previous incarnation of the semi-public housing corporation UR, for instance, bought massive tracts of land in the 1980s for housing developments that never materialized. Rather than sell off the land and risk the ire of the public—whose taxes paid for the purchases—with huge losses, UR has rented out some of the land piecemeal to homeowners. We also inspected a house in northern Chiba whose owner still had 43 years on his land lease with UR, and he told us he could buy the land at any time. He wants to sell his house, though, and thinks that because it’s relatively new he can get a fairly good price for it.

For that matter, our friend in Kamakura was also thinking of selling his house before his lease is up, and though he knew he wouldn’t get what he paid for it, he didn’t think the fact that there wasn’t land attached would make it harder to sell. “I think Kamakura is on the easier side,” he said. “People definitely want to live here.”

Another drawback with rented land is that it’s difficult to pass a family home on to one’s children or grandchildren, since there’s no guarantee that the landowner will renew the lease. However, it may not be as much of a problem in modern-day Japan since the majority of houses aren’t built to last more than thirty years, much less fifty. The chief merit of the system, if you want to call it that, is that homes sold not long after they are built on rented land tend to be cheaper, for obvious reasons.

A lot of condominiums are built on rented land, which means all the condo-owners, whether they live on the ground floor or not, have to pay monthly rent. It’s easy to spot these situations. Condos built on rented land are usually cheaper than the market rate in a given area. Once we saw a 12-year-old condo located 12 minutes by foot from Machiya station in Tokyo. The size of the unit was 83 square meters and it cost ¥22.8 million, which was quite good for that area. The fine print revealed that the land was rented, and that the owner of the unit had to pay ¥14,000 a month to the landlord, in addition to the monthly management fee of ¥12,000 and a monthly repair fee of ¥6,050. 

Fortunately, the lease wasn’t up until 2049, so if you bought the unit you didn’t have to worry about being kicked out of an apartment you owned for another forty years. Meanwhile, taking into consideration that the building contained 227 units, we calculated that the landowner made a cool ¥2 million a month, without having to spend any money at all in terms of upkeep. Just property taxes.

***

Once while inspecting a house we complained to the realtor about all the surigarasu, meaning clouded or pebbled glass, that was rampant throughout the structure. He told us that according to local law if two residential houses were less than one meter from each other, the windows facing the other house had to be surigarasu. We’d been given various reasons for why obscured glass is so prominent in Japanese houses, but this was the first time we’d heard there was a law. As it turned out, clause 235 of the Civil Code states that when a residential structure is built within a “certain distance from the property line” it must have some sort of mekakushi (blind), presumably for the sake of privacy. This is a guideline, and local governments are free to modify stipulations “according to custom.” If no one complains the law isn’t invoked, but developers and builders systematically take matters into their own hands. We once asked a salesman of a manufactured house company how much it would cost to replace all the standard obscure glass in one model with transparent glass and he said it would not cost anything, but seemed bothered by the notion. We said we wanted to see outside. He said our feelings weren’t the issue. Maybe the neighbors didn’t want to see us.

Close living is common in cities throughout the world, but in Japan even the suburbs feel cramped. The usual explanation is that Japan is a mountainous country with a substantial agricultural sector. Level land is at a premium. As incomes grew after World War II living standards improved and families demanded larger houses, which developers were only too happy to give them. In terms of floor area for single-family homes, Japan ranks number 5 in the world, ahead of even Australia. However there has been no comparable increase in residential land size. Laws make it difficult to reclassify land designated for farming (nochi) into land that can be developed into an “urban district” (shigaichi). After the war, the American occupation carried out land reform, which had the effect of turning the farmers who had previously rented the fields they worked into full-fledged landowners, and they’ve been fiercely protective of their acquisitions ever since. For fifty years they counted on the ruling Liberal Democratic Party to defend their interests in exchange for unwavering support. The LDP guaranteed high prices for rice, and when production exceeded demand they paid farmers not to grow food. Property taxes were modified accordingly. Farmland that fell within cities targeted for growth were taxed heavily so as to convince farmers to sell. Elsewhere, as long as the land had the semblance of growing something—many farmers simply planted no-maintenance chestnut trees—taxes were low.

In principle, land designated for farming cannot be sold for any other purpose. The farmers who own the farmland can build homes on the land, but they cannot sell those homes to anyone who doesn’t intend to use the attached land for agriculture. The result has been what the late historical novelist Ryotaro Shiba called “land capitalism.” Everything from commodity prices to the cost of labor is tied to land value, which was kept high due to lack of availability. The government promoted home ownership, but because land was so expensive the average salaried employee could only afford cheap houses. As far back as 1975, Shiba, who advocated strict government control of land prices, predicted Japan’s ruin if its land-use policy continued. Over time farmers may want to sell their land to developers, in which case the decision to reclassify land usage is determined by local agricultural committees (nogyo iinkai). When they do make such a reclassification, the land to be developed is called shigaika chosei kuiki, or a “district under urban adjustment.” The farmer can then sell the land and will usually do so with the help of a housing developer who prepares the land by bringing in utilities and carving it into subdivisions. The more subdivisions, the more money there is to be made in housing construction. 

A common subdivision method is called fukurokoji, wherein a “dead end” private road extends at right angles from a public road. According to law, all housing property must be in direct contact with a public road, a situation that limits the profitability of subdivisions since, theoretically, a developer can only build a single row of houses along a public road. But by building a private road (shido) perpendicular to a public road and then dividing that private road into strips and attaching them to the individual properties that line it, the developer can get around the law, since the strips of private road, owned by individual homeowners, are in contact with the public road. The strip of pavement is included in the price of the land though it cannot be “developed.” In practice, the private road is the communal property of the people who live on it, which means they are responsible for its maintenance, not the local government.

This development method has given rise to hatazao lots: properties that, on paper, look like “flag poles”—long, skinny portions of road attached to rectangular lots. Thus, a piece of land that might have accommodated only two houses can be made to accomodate five or six. These houses won’t have much in terms of space between them nor available sunlight. Hatazao development has led to a curious phenomenon, especially in the countryside: clumps of tightly packed houses surrounded by huge tracts of open farmland. 

The cramped feeling is exacerbated by the aforementioned preference for southern exposures. However, when houses are as closely situated to one another as they are in Japan, this preference can have strange results. Housing companies sell prefabricated units in which the “southern” part of the house is all windows and the “northern” part contains all the mizumawari functions, such as the bathroom, toilet and kitchen. Plumbing is the most expensive element of house construction, so containing it in one area keeps the price down. Windows also add more to a house’s cost, and it’s assumed that the mizumawari area of the house doesn’t need much in the way of exposure. So in subdivisions the “southern” part of the house, regardless of its orientation to roads or other geographical features, is always the one with the most windows since it faces, often at uncomfortably close proximity, the “north” side of its neighbor, which has few or no windows. Community privacy is thus maintained. Needless to say, properties that properly face public roads and have unblocked southern exposures are much more expensive than those that don’t.

Of course, a homeowner can have his house designed and situated any way he wants, but according to Civil Code 235 if a neighbor complains of such decisions the homeowner will have to do whatever necessary to guarantee the neighbor’s right not to see what goes on in the homeowner’s house. Thus surigarasu is a kind of standard.

***

In 2014, a couple in their 60s in Saitama City, just north of Tokyo, were living next to a family who installed an Eco Cute system, which uses heat pump technology to heat water more efficiently and, thus, reduce electricity costs. The word “cute” here is a play on the Japanese word kyuto, which means “hot water supply.” After the system was installed, the older couple’s health deteriorated, mainly due to loss of sleep. Eco Cute operates only at night, when electricity costs are low, and the couple claimed that the unit emitted a low frequency hum that kept them awake. They sued the neighbor and the manufacturer of the Eco Cute unit.

In preparing the case, the couple’s lawyer discovered nine similar suits. Moreover, according to the Asahi Shimbun newspaper, the Consumer Affairs Agency had received 40 such complaints in 2013, 50 in 2014, and 90 in 2015. At the time, more than 5 million houses had installed Eco Cute technology, which first went on sale in 2001, and until 2010 homeowners could receive a government subsidy since it conserves energy. Though the technology is good for homeowners and the environment, the noise problem was real, but it had less to do with the technology than with Japan’s housing situation. The plaintiff’s bedroom in the Saitama case was 130 centimeters from the property line, and the Eco Cute unit is 65 centimeters from the property line on the other side, meaning the device in question was only two meters from where the plaintiffs slept.

More than 70 years after the end of World War II, Japanese residential land size remains small in relation to the rest of the industrialized world, while houses get bigger. That means residential developments are even more cramped. Land prices are much less than what they were during the high-asset “bubble period” of the late 80s, and yet government statistics indicate that average land size for new housing lots continues to shrink. 

According to “Aging Houses, Collapsing Towns,” a 2016 book by Chie Nozawa, the pressure to keep new housing lots small is exerted by the housing industry, in particular manufacturers who sell new homes. Nozawa says that only 10 percent of residential land in Japan that has uninhabited housing is reused for new housing. Overwhelmingly, all new housing is built on newly developed land, which, given the fact that Japan’s population is shrinking, is a waste of resources. Housing companies are only interested in new subdivisions, and in order to attract young people whose means are not as great as their parents, they have to provide affordable land and buildings, which is why plots are getting smaller. Young people want big houses, so they’re willing to pay less for land, and housing companies are happy to oblige because they don’t make money reselling land. They make money building homes. 

According to the Ministry of Internal Affairs and Communications, between 2003 and 2008, the average size of new residential plots nationwide shrunk by 6 square meters. When a developer or housing manufacturer buys a parcel of land, usually from a single owner or group of owners, it wants to make as much money from that parcel as possible, which means carving the parcel up into tiny lots, each of which can contain a house. The main problem is finding these parcels of land, and in most cases new housing developments are popping up in areas that were originally zoned for agriculture. In order to rezone the land for housing, regulations have to be changed, and increasingly local governments have obliged, since they think housing companies bring in work, money, and new residents. According to Nozawa, however, most of the people who buy the houses built on these rezoned plots tend to be from the same town or city. All they are doing is moving within the region.

This sort of scheme leads to over-production of new housing. As long as the emphasis is on new land and new homes, older land and older homes are neglected. 

Nozawa uses Kawagoe, a bedroom community north of Tokyo, to illustrate what she calls this “slash-and-burn” approach to subdivisions. Between 2000 and 2005 the number of people living in areas zoned for agriculture in Kawagoe declined, but starting in 2005 the number of residents in these areas increased, because housing companies took advantage of new regulations that allowed them to buy land previously off-limits for housing in order to build new developments. Over the next six years 155 hectares of farmland was rezoned for housing. Nozawa says that the local government has no city planning in place for these new developments, which are scattered throughout farming districts in a haphazard manner. In order to make a subdivision, all a developer has to do is provide roads that are at least 4 meters wide and water drainage. The city does not build infrastructure in these districts, meaning no sewage, water mains, or gas lines, so homeowners have to sink septic tanks and dig wells. And since there is no gas, many either subscribe to LP gas services or go all-electric, which is why systems like Eco Cute have become so popular. 

The situation has placed unexpected pressure on the local government, since the population of Kawagoe is shifting from the developed “urban” part of the city to the countryside where not only is there no infrastructure, but no schools or commercial outlets. All the young families who are buying the ready-made houses and tiny lots have automobiles. They don’t worry about public transportation. But now local governments have to spend more money to build schools. Also, because there is no sewage system, ground water is becoming polluted. Septic tanks are fine but must be rigorously maintained, and the local government is not properly regulating them. 

This isolated, uncoordinated growth is not limited to the suburbs. In Tokyo it is happening on the waterfront, where huge condominium developers are taking advantage of eased capacity regulations to build dozens of new “tower mansions.” The Tokyo metropolitan government must provide city services for these new “communities,” which are mostly drawing residents from other parts of the city. In other words, local governments have to provide more services for the same tax base, which is now spread out over a larger area. Population densities in regional city centers are going down, adversely affecting commercial endeavors as well. A survey conducted by Mizuho Bank found that between 1997 and 2013, the number of supermarkets declined in regional capitals by between 57 and 73 percent. Toyo Keizai magazine reports that only 18 of JR East’s 70 train lines are running in the black because populations of certain areas are becoming too diffuse to sustain them.

Unchecked, unplanned suburban development that benefits housing makers is dispersing an already dwindling population over a wider area. And as we’re seeing now with the huge [i]akiya[i] (abandoned house) problem, this new housing is not going to be a financial asset to their owners because their value in a shrinking market drops as soon as they move in. Local governments think that by easing zoning regulations to make it easier for developers to sell new houses they are stimulating the local economy, but they’re not. They are just creating more junk real estate.

4 comments

  1. Lee · May 14

    Hi,

    Keep the chapters coming as they are always an interesting read.

    I still spend time looking at properties for sale in Japan more as a hobby than anything as we will never go back there to live and given the current travel restrictions probably not for vacation either.

    I see some real estate for sale with leased land both houses and condos once in a while.

    There seem to be quite a few of those in the Kamakura area both houses and condos. In Chiba Prefecture there seems to a lot of condos built near the waterfront on reclaimed land that are on leased land.

    Wouldn’t ever consider buying such a property again.

    In Hawaii there are still lots of condos sitting on leased land and you can have both freehold and leased land units in the same building. I wonder what will happen to the units where the lease runs out…..

    Some of these condos converted from leased land to freehold and gave the units owners a chance to buy the land. In many cases the cost of the land was more than the initial purchase price of the unit.

    In one condo that we used to rent when staying in Waikiki the units at the time of conversion were selling at around US$200,000 area and the land purchase cost was about the same. So about US400,000 in total for the unit and land.

    Twenty years later and the price of these units ranges from UD$450,000 to US$550,000. So not much increase in value

    At least the unit holders were given an opportunity to buy the land.

    If you want to see what happens to property prices when the lease is running out and no chance of conversion is possible look at the history of Kahala Beach which have gone from multi millions to under US$100’000.

    Like

  2. dd · May 14

    Love the content, keep it coming. I have bought and sold a few new apartments in Tokyo – have seen the rental land and always stayed away. Thinking now of renovation of older units so may encounter again. Good reminders here!

    When you take it to a book, try to find an editor who can work with you to shape and sharpen the writing. A lot of good in there which can really shine with a partner!

    Like

  3. Ori · May 18

    Maybe I didn’t pay attention enough, but it seems that the first part of the article says that it is very bad that Japan doesn’t use farmland for housing, and the second – that it is very bad that it does.
    Also, wrt of only 10% of the “old” land being reused, I’m sure those 90% are in the rural areas, where no new house are built at all, new land or old.
    In Tokyo and other popular cities old houses it is very difficult to find an absbdoned property.

    Like

    • catforehead · May 23

      We don’t say that the difficulty of shifting of agricultural lands to residential land is “good” or “bad,” only that it is an important factor in how residential land is developed. And there are many vacant houses and condos in Tokyo and other big cities, but because the land is expensive and/or related tax issues, the owners don’t do anything, so, technically, they aren’t “abandoned.” Abandoned properties in the suburbs and countryside are more apparent because in many cases the owners can’t even be contacted.

      Like

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