One of the prime purposes of this blog is to explain the paradox of Japan’s housing situation. The country’s residential real estate market is one of the liveliest in the world, and yet most homeowners can’t count on their properties being net assets in the long run. And then there’s those 8.5 million empty residences, which, despite the occasional media story about some foreigner swooping in and turning a derelict kominka into a dream home, will likely remain empty forever without a concerted effort on the part of the central and local goverments to either find a way to make them desirable or get rid of them. 

A recent story that appeared on the financial magazine Toyo Keizai‘s web site reinforces this paradox. The writer, a real estate consultant named Yujin Oki, claims that there is a critical housing shortage in Japan. In a long article dense with statistics he doesn’t even mention the akiya (empty house) situation, probably because his focus is still on urban housing, and most abandoned homes are in the countryside or outlying suburbs (though there are also quite a few in Tokyo). The part of the paradox he does mention is the demographic angle: Japan’s population is declining, which means the available housing stock should be increasing, but it isn’t. He then endeavors to explain why. 

Since 2013, he writes, the price of condominiums in Japan has increased by 70 percent. The main reason is Abenomics, or, more precisely, the monetary easing policy that was a core component of the late Shinzo Abe’s master plan to bring the Japanese economy back to its former glory. The Bank of Japan would print more money and give it to commercial banks at low interest rates. Most of this cash was loaned out to buy land, since it is the most secure investment, and that drove prices up. This always happens with monetary easing. 

However, the situation was complicated by extraneous factors, namely the sudden increase in the price of construction materials and the more gradual decrease in the construction labor pool. Residential developers who borrowed all this available cash were faced with rising construction costs and delays in construction time due to lack of workers, thus driving the price of newly built homes higher. On top of the boost in land prices, new housing was more expensive, especially in places like Tokyo and its surrounding suburbs. Though he doesn’t specify exactly when, Oki says that the number of new condos in the Tokyo metropolitan area going on sale was once 90,000 a year, but this year the number has dropped to only 30,000. That’s why there is a shortage.

As we’ve often pointed out in this blog, almost all the writing about real estate trends focuses on Tokyo, and this article is no exception. Oki does make a point of saying that the shortage he’s talking about is in “places where people want to live,” but doesn’t interrogate that qualification any further. For instance, we can say for a fact that the suburb where we live, an hour from Nihonbashi by train, has seen a lot of new building in the last five years and many young families moving in, but this kind of growth seems to play no part in Oki’s calculations. New homes still seem to be affordable and plentiful for people with average incomes in our neck of the woods.

What Oki really wants to talk about is how housing price inflation in the capital is driving up rents, since more and more people who are starting families and who work in Tokyo cannot afford to buy a condo “in the 23 wards.” Many of these families are looking for rental properties and finding it more and more difficult to secure anything that meets their criteria and which they can afford. In fact, the average monthly rent for an apartment in the 23 wards is higher than the average monthly mortgage payment for a condominium of comparable size. One of the reasons for this disparity is that landlords who build new rental apartment buildings can’t borrow money at the low interest rates available for housing loans since they are taking out commercial loans. That means the cost of constructing new rental housing is higher than it is for a family to buy a condo. When the monthly rent of an apartment equals the monthly mortgage payment on a condominium, on average the apartment will be 20 percent smaller than the condominium. 

Last spring, NHK’s Tokyo newsmagazine, Shutoken Navi, reported on a Tokyo family that was looking to leave the husband’s company residence for a place of their own somewhere in the 23 wards. Though the couple’s combined income was about ¥13 million, they realized they couldn’t afford the kind of condominium they wanted in Tokyo, so they decided to rent. They set their budget at ¥250,000 a month and, because they have two young daughters, desired a unit that was at least 60 square meters and less than 30 years old. They found nothing that fit all their conditions. NHK discovered that rents for Tokyo condos of more than 50 square meters had increased by more than 25 percent since 2015, driven by the high demand from buyers for new condominiums. Consequently, households with children making “average incomes” can no longer afford to buy condos in the 23 wards. Now, it seems, they can no longer to rent large enough apartments, either.

Oki seems to assume that with only 30,000 new units entering the market this year in Tokyo, some 60,000 households who want to buy have been priced out, thus driving them either to used condos or rental apartments. For the last 5 years the home ownership rate in general has been dropping, though he doesn’t say if this change applies to Japan in general or to Tokyo only. In any case, the trend shows why rents are on the rise, and not just for families. They’re rising for single-person households as well. Even if the population does not increase, if the number of households does, that means more pressure on the housing market. He predicts that the number of households in Tokyo will reach a new record high next year, based on the current number of job recruitment advertisements in Tokyo for new university graduates. 

The only solution is to build new rental housing, but in order to keep up with demand, landlords and developers would have to return to the pace of construction as it was 30 years ago. As already mentioned, construction has declined significantly, and not only due to the labor shortage. Since COVID, many smaller and medium-sized construction companies went bankrupt and have not been replaced. Oki therefore is calling on the government to “build good quality stock” that will last at least 50 years. Current standards are for 30 years, which is why many buildings in Tokyo are in dire need of renovation, which also requires construction labor that isn’t readily available. The private sector can’t keep up. (Also, Oki assumes circumstances in which those seeking rental properties meet the criteria of landlords, meaning they’re not foreigners, single women, workers in the “water trade” (usually single women), pet owners, resident Koreans, or disabled persons. Many landlords still won’t even rent to couples with children, and the government can’t make them.)

If you live outside of Tokyo you can be forgiven for not caring much about this, though likely it affects you in some way, especially if the central government becomes involved in a solution that requires public funding. Oki, whose article is likely spurred by professional interests, doesn’t consider the wider ramifications. Is there a place in his narrative for all those abandoned homes? With a shrinking overall population and further over-concentration of people and resources in the capital, Japan’s housing situation just becomes more deformed. Above, we said that homeowners cannot expect their property to be a net asset in the long run, but, obviously, if you live in Tokyo that isn’t true. Certainly, if you buy a used property there that isn’t more than 30 years old, in this market you’re bound to get back your investment and maybe even more. We’re just not too sure where that leaves the rest of us.