Reviewing our posts on this blog for the past year or so, we noticed that much of our writing is related to akiya, or vacant housing, which has become an increasingly visible problem that the media is finally addressing. However, when we look at the statistics, we notice that akiya are not limited to single-family houses, which is usually how the problem is framed in the press, but, in fact, is mostly comprised of apartments and condominiums. 

The reasons for this lack of coverage may have to do with the fact that the image of apartments is that they are rented out, while the image of akiya is that of abandoned properties, so it’s difficult to imagine an apartment that temporarily does not have a tenant to be permanently vacant. However, condominiums are a different story since they are bought and sold, and for the most part when the press talks about the condo market they only talk about Tokyo, where apartments and condos are still in demand, even used ones.

But we found an article that appeared last spring in the business magazine President that covered vacant condominiums in depth, and, apparently, the situation is as dire as it is for single-family houses, even if the problem isn’t as visible. 

The article quotes a number of experts, including an economics professor, Hiroaki Miyamoto, who says that in ten years one out of every four housing units in Japan will be vacant, and that the majority will be collective housing units, meaning condos or apartments. The main reason will be the lack of funds available to carry out long-term repairs and renovations on older buildings, which, as a result, will fall into disrepair and become not only difficult to sell, but in many cases uninhabitable. 

To the international finance community, Japan is already considered a “pioneer” in the onset of permanently vacant properties, especially after the IMF conducted a study of the phenomenon in 2020. The outcome of the study was that vacant properties bring down property values in the communities where they are, and thus adversely affect regional economies. 

As we’ve noted a number of times, the Japanese government carries out a large-scale survey of the housing and land situation every five years, and according to these surveys the gross number of housing units in Japan continues to increase even as the population has leveled off and started to decrease due to the birth rate. In 2018, the last time a report was released, the number of housing units stood at 62.4 million, while the number of households was 54 million, meaning that there is a 16 percent excess of housing units. 

Until 1963, the number of households in Japan exceeded the number of units, but this ratio reversed in 1968 and ever since the number of units has continually increased in relation to the number of households. 

Moreover, 85.9 percent of households in Japan, or 53. 6 million, contain full-time residents, meaning that 8.79 million units, or 14.1 percent of the total, contain no residents, and almost all of these are defined as “vacant” by the government—8.49 million, or 13.6 percent of all housing units. A property’s “vacant” status depends on how much or often it is used. In that regard, the portion of vacant properties has been increasing since 1988, when the vacancy rate was 9.4 percent. 

President cites the methodology of the National Social Welfare Population Issues Laboratory, which has determined that the number of households in Japan will peak at 54.19 million in 2023, which also happens to be the year when the government releases the results of its latest housing survey. From now on the number of households will drop, and by 2040, the laboratory predicts the number of households will be 50.76 million, or 3.24 million less than it was in 2018. Extrapolating this trend further, the number of akiya will invariably continue to increase at an accelerating rate; that is, unless more properties are demolished.

As it stands, the number of demolished properties is also accelerating. Between 2008 and 2012, the number of homes demolished was 30 percent of the number of new homes that were built. Between 2013 and 2017, this portion increased to 62 percent. Nomura Research used this statistic to predict the vacancy rate for the future. If the 2008-2012 rate of 30 percent is used, the vacancy rate will be 25 percent by 2033 and 31 percent by 2038, but if the tendency shown in the change in the rate through 2017 is used, the vacancy rate will be 18 percent by 2033 and 20.9 percent by 2038. 

So while the vacancy rate will continue to increase, it could slow down if the rate of destruction of superannuated properties increases as well, but that isn’t a given, since new home construction isn’t slowing down appreciably. 

The government divides housing types into four categories: detached houses, row houses, collective housing, and others. More than half the akiya in Japan are categorized as collective housing units, including rental apartments. In 1998, 6.7 percent of all detached houses, or 1.83 million, were vacant. That number increased to 3.18 million by 2018, or about 10 percent of all detached houses in Japan. In contrast, however, the number of vacant collective housing units increased by 30 percent over the same period. The collective housing vacancy rate is now 18 percent. Broken down further, in 2018, 51 percent of all vacant housing units were rental properties; 4.5 percent were “secondary” properties, meaning, usually, vacation houses or condos; 3.5 percent were properties that were on sale; and 41 percent were “others,” which is the most important number to consider, because 80 percent of the “others” category are vacant detached houses or condos that are not on sale, meaning they have simply been abandoned.

Eighty percent of vacant collective housing comprise rentals, which throws a wrench into the statistics because these units are not necessarily permanently vacant. Economically, vacant rentals are important, but economists usually cite a 5-7 percent vacancy rate as being the norm for a healthy housing market. Japan’s is now 18 percent, and while the rate can vary widely from region to region—Yamanashi Prefecture’s is the largest at 21.3 percent (owing probably to the large number of vacation properties that are rented out), but even Tokyo’s is 10.6 percent, which exceeds the 7 percent ceiling cited as being the maximum for a healthy market. 

So while rural regions have a much higher portion of vacant housing, urban regions have more vacant properties in terms of pure numbers. Yamanashi has 90,000 akiya, while Tokyo has 810,000. 

The reason is simple, and one we’ve mentioned many times: New construction has not slowed down as the population has stalled. Between 2014 and 2018, 4.67 million new homes were built in Japan while only 560,000 were demolished, resulting in a net increase of 4.11 million housing units. During the same period, the number of households only increased by 2.11 million, thus meaing an excess of 2 million homes were created. The market is oversupplied, and becoming more so. 

Another reason for the continued increase in akiya is the situation surrounding inherited property. A survey conducted by the land ministry in 2014 found that 56.4 percent of all the homes in Japan were obtained by their owners through inheritance, but that doesn’t mean the owners live in them. Many people inherit properties they have no intention of occupying, but if they cannot sell the property or rent it out, they usually just leave it vacant because the cost of demolition and preparing the land afterwards is so high. Another reason is property taxes. Land that contains a house is taxed at one-sixth the rate of land that is vacant, or at least it was until 2014. Since 2015, there has been a new law in place that mostly does away with this dispensation if the house that occupies the land is deemed permanently vacant.

In the end, President gets down to the core problem, but they strangely place the blame on cultural attitudes rather than public policy. “Japanese people prefer new homes,” is how they explain it, before eventually admitting that “the national policy is to promote new housing sales.” In 2018, used housing units accounted for 14.5 percent of all home sales in Japan. In U.S., used houses comprised 81 percent of all housing sales, 86 percent in the U.K., and 69 percent in France. The reasons given for the preference in Japan for new homes are concerns about quality and “hidden flaws,” two factors that may have more to do with general attitudes about housing. Owners of homes do not keep up their properties in Japan because they have already been conditioned to believe their home (as opposed to their land) has no intrinsic value, which means used home values decrease as a matter of course and create a situation where wooden detached houses become worthless 20 years after they’re built. In Japan, buying a home means buying a new home. 

Condos, says President, is a relatively “new problem,” owing to the fact that condo sales were a late phenomenon and the ramifications of collective ownership have only become apparent in recent years. The main impetus for condo sales was the movement of populations to urban centers. As cities required more workers, those workers could not afford housing in city centers and thus, starting in the 1970s, Japanese suburbs were developed  and that’s where most of these detached akiya are now located. But breadwinners who preferred living close to their workplaces opted to buy condominiums, and the trend grew during the late 80s and 90s. Those condos are now getting old and are in need of extensive renovations.

According to the land ministry, as of 2019, there were 2.13 million condo units in Japan that were at least 30 years old. By 2029, the ministry estimates the number will have grown by 80 percent to 3.84 million, and by 2039 to 5.7 million. After 30 years, it’s assumed that collective housing buildings need to undergo major renovations. If these renovations are not carried out, the building can become unsafe and the surrounding property will decline in value. 

The problem is that many of the homeowners associations that manage these buildings do not have enough money in their renovation funds to carry out the required repair work. The ministry says that 35 percent of HOAs in the Japan right now have insufficient funds on hand. And as these buildings get older, the owners do, too, and once they reach retirement age they may not have the extra money to cover the repair work. 

This situation was covered by Asahi Shimbun in an article published Dec. 30. The article was about a 28-year-old condominium in Kawasaki that consisted of 19 units. Last May the owners committee met to talk abut carrying out repairs. The condo is a “terrace-type” structure, so the repair work will require special attention and thus cost more than conventional renovations. The committee then considered a different option: Tearing the building down and rebuilding it. An outside consultant gave them an estimate for this scenario and they were shocked at how expensive it would be: ¥900 million, or ¥47.4 million for each owner. 

Since most of the owners are in their 60s and living on fixed incomes, the price of rebuilding is prohibitive. The only possibility would be to increase the number of units in the rebuilt building and sell those units to offset the cost of new units for the existing owners by dividing the profits from the sales. But that would require a change in the legal capacity rate, and as it stands the existing structure already uses the full capacity allowed by the city of Kawasaki. A licensed condo manager tells Asahi that the situation facing these condo owners is not unusual, and will likely become more common since, in his experience, condo owners “never face the reality” that they have to work together for the benefit of their shared space. As of April 2020, only 244 condominiums comprising 20,000 units, have ever been rebuilt in Japan. 

The government’s solution, according to Asahi, is to relax the legal standards for homeowners associations; specifically, reduce the majority portion necessary to approve reconstruction and renovation. The Civil Code previously stated that all owners in a building must agree to any proposal that affects everyone in order for it to be carried out. This regulation, the government found, was a damper on sales since the entire building would have to approve improvements that increased the value of the building, such as better quake-proofing. Consequently, the law was changed: now, four-fifths of the owners need to approve a plan. 

But according to a real estate consultant, this change doesn’t address the real problem, which is cost. The consultant figures that in most of the cases he’s seen where all the owners in a building agreed to rebuilding, they would need 3 to 4 times the number of units in the present building if they were to earn enough money to cover the construction without the present owners having to pay out of pocket. That might work in an area zoned for extensive redevelopment, but under normal circumstances local capacity rate laws would make it impossible. So even if consensus laws are relaxed, the problem remains.

This is especially true in cities, where even if capacity laws are fairly liberal, there isn’t enough excess land to provide for any extra units. And if the city has height restrictions, you can’t add units vertically, either. These restrictions have changed over time, in fact, becoming stricter. The land ministry estimates that 60 percent of the condos built before 1970 that are still standing violate local zoning, height, or capacity rules. If they were rebuilt, in most cases the building would have to be smaller, not bigger, so the only way you could add more units would be to make everyone’s smaller.

Another solution would be to destroy the building and sell the land to a developer with the idea the developer would build something under the condition that previous owners would get an advantage, but unless the land is in a particularly desirable location most developers aren’t interested. 

According to housing expert Hidetaka Yoneyama, when the idea of owning apartments first gained traction in the 1970s, it set off a “time bomb” in that no one seriously thought about the future of such buildings. When the moment of truth arrives that something has to be done, few owners are willing to face it. As a result, older condos—by 2040, there will be 4.4 million over 40 years old—will become uninhabitable and no one will pay to tear them down, which is much more expensive than tearing down a detached house. Yoneyama suggests that the authorities make it mandatory for homeowners associations to maintain not only funds for major repairs, but also funds for demolition. Maybe the property tax system should include a demolition surtax; or the government could create a subsidy system. But in the end, there may be millions of empty condo units in buildings that will be falling apart because there aren’t enough people living in them to keep them from not falling apart.