On April 27, the government will launch a new system that will allow people to “return” land they own but don’t want to the state. The main reason for this new procedure is that there has been a marked increase in recent years of land whose ownership is not clear. In 2016, a specially appointed research group found that 4.1 million hectares of land in Japan, an area larger than the island of Kyushu, had no clear titleholders. If this trend continues apace, then by 2040 there will be 7.2 million hectares of unclaimed land. The reason for the increase is that it is assumed that as more land-owners die, a good portion will not have heirs to take over that property. Unmanaged land becomes a problem for the authorities in terms of disaster prevention and general administration, which includes appropriating land for public works and other projects.
There are many reasons why people either abandon property they own or avoid inheriting it from family or relatives. Mostly, it has to do with the cost, including property taxes, of maintaining land and structures that they will never use and can’t sell, especially if they are located in remote areas. Sometimes the property is a rental apartment building that still has a mortgage but no tenants. Sometimes it’s a parent’s home that no one wants to occupy and, again, isn’t sellable for some reason. Then there are forested tracts of land that require management by law, which can be expensive. According to a survey carried out by the land ministry in 2019, 42.3 percent of people who own land or expect to inherit land think that such ownership is a “burden.” This portion goes up when the land is either vacant or zoned for residential use. In addition, 63 percent of unused or vacant land in Japan was inherited by the current owner, a common situation given that land inheritances are taxed at a lower rate than cash inheritances.
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.
Variable interest housing loan campaign from early 2020
With constant talk of a looming worldwide recession, economic news tends to be gloomy, and each country has its own particular problems. Some financial commentators say that Japan’s interest rates remain ridiculously low compared to elsewhere, but no one seems to see it as an issue to fret about. A Nihon Keizai Shimbun article that appeared Nov. 6 tries to examine the matter as it relates to Japan’s overall financial health and the prognosis is not good.
However, the reason for Nikkei’s pessimism is rooted in a larger problem where interest rates play a part: Japan’s over-supply of housing. This blog has covered this topic every which way since it launched in 2009, and none of the conclusions reached by Nikkei are particularly fresh, but as Japan’s population continues to shrink and age they are more relevant than ever and bear repeating.
The main concern of the article is variable interest loans, which account for more than 70 percent of all mortgages in Japan. Variable interest means that the lender has the discretion of changing the interest rate during the period that the borrower pays back the loan, meaning it could go up or down at a designated time. The reason most people take out variable interest loans is that they charge lower rates in the beginning than fixed interest loans do. In Japan, housing loan interest rates are still absurdly low compared to the rest of the developed world. The lowest we could find right now is the 0.289 percent charged by au Jibun Bank, followed by Mizuho’s 0.375-0.675 percent. When people take out variable interest loans starting at these rates, they likely think that even if they go up, it won’t make that much of a difference, but actually it does. According to MFS, a service company that helps customers compare housing loan rates and conditions, a 0.1 point increase in the interest rate would lead to an increase of ¥110 billion in interest debt throughout Japan. In simpler terms, if your variable interest rate rises from 0.5 percent to 1.0 percent, your interest payments will double.
Such an increase wouldn’t necessarily be a problem if the asset value of the home being financed remained the same or went up, but in Japan, as we’ve said here many times, that isn’t the case. Conventional wisdom says that if your mortgage becomes too much to handle you can refinance the loan using your home as collateral, or sell the house, pay off the loan, and then buy something cheaper with the money left over. But in Japan, depending on how old the house is, it may be difficult to sell it for the amount needed to pay off a loan, which means the owner is at risk of going bankrupt if their personal financial situation changes for the worse due to loss of income, sudden severe illness, or whatever.
One of the main themes, if not the central theme, of this blog is that Japanese homes don’t hold their value over time the way they usually do in other developed countries, and while this situation does have a silver lining in that homes are affordable to a larger cross section of people, including young families, in the long run it makes it difficult for retired people to expect much in the way of a return on the investment they made in their home, which is usually the most expensive thing they own by a huge margin. But this feature of Japanese economic life has even broader effects on the quality of life for seniors, as revealed in a June 5 article in the Nihon Keizai Shimbun.
Certainly the main advantage of owning one’s home anywhere is that once the mortgage is paid off no one can kick you out. Regardless of income, a person who owns their home will always have a roof over their head. In Japan, this notion is usually conveyed by referring to the house or condominium as the person’s “final home” in that the person can live there until they die. The theme of the Nikkei article is that even this concept is no longer guaranteed or, at least, not assured in the way that most seniors thought it would be. The main reason is that the cost of renovations for homes has increased by 20 percent over the past ten years on average. This increase, combined with the fact that Japanese people are living longer, makes the possession of homes in Japan more difficult for people on fixed incomes.
According to a survey conducted by the justice ministry, the home ownership rate of households with two or more members and whose head of household is over 60 is above 90 percent, which is quite an impressive portion and speaks to the success of Japanese housing policy in how it has promoted home ownership over the years. In practical terms, it means the people who live in these households have a “final home” that should remove any economic anxiety from their twilight years, but Nikkei says that isn’t the case. For one thing, standalone houses in Japan tend to need extensive renovation work done on exteriors and roofs every 15 to 30 years, depending on when the house was built—the older the house, the more frequent such renovations are needed, and each time they are carried out they require at least ¥9 million. In the past year alone, costs for renovation have gone up substantially owing to inflation and the world distribution crisis. These costs are not expected to go down.
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. Read More
One of the older neighborhoods in Inzai without utility poles.
In recent weeks, we heard that the city where we live, Inzai in Chiba Prefecture, has become notorious for something. This has happened before; in fact, it’s happened several times. Though Inzai is about as nondescript as a Tokyo suburb can be, it occasionally pops up on the news for some reason or another. Earlier this year we were the butt of jokes because of a PR video produced by the city that had gone semi-viral because of its conflation of the name “Inzai” with the word “Indo,” which is the Japanese pronunciation of India. The video, fashioned after a low-budget Bollywood production, featured Indian tourists supposedly flocking to Inzai because they somehow mistook the city for their home country. Yeah, it deserved all the derision it attracted, and not just for the bad humor. More often, however, Inzai gets cited as one of the most “livable” cities in Japan for reasons we’ve talked about before and don’t need to get into again.
This latest blast of fame apparently originated on the prime time TBS information program “Newscaster,” which ran a mini-feature during its “7 Days” weekly review segment in September about all the homes on the Boso peninsula that had lost electric power during and following Typhoon Faxai. The main problem was that the strong winds blew over utility poles, many of which were in poor condition due to neglect. Because of all the work involved in getting utility lines back up, some sections of Chiba Prefecture didn’t have power for more than two weeks. In order to illustrate what could be done in the future to avoid such disasters, TBS visited Inzai, where a lot of new single-home construction is currently taking place. They went to one development near Inzai Makinohara Station on the Hokuso Line, the same station we use, because this neighborhood did not have utility poles. All the electrical cables are underground. Burying cables is the norm for most of the developed world, but Japan is way behind. In Tokyo only 8 percent of cables are buried; in Osaka only 6. In Hong Kong, London, and Paris all the cables are underground. Read More
Last week the government released population figures for 2017 and to nobody’s surprise the Tokyo metropolitan area was the only region that saw any increases. Given that Japan’s overall population is dropping, it was notable that the three prefectures surrounding the capital saw increases, even if they were very slight.
It would be interesting to know how much of these increases were attributable to the construction boom in so-called tower mansions, or high-rise condos. Two weeks ago, NHK aired a look at the boom that attempted to weigh the merits of high-rise living with the demerits. Until recently, most of the tower condos, which the program defines as a building of at least 20 floors, or 60 meters, were being built on the Tokyo waterfront, but now they are popping up like spring bamboo in satellite cities like Kawasaki, Saitama, and Kashiwa, because local governments are encouraging developers to build them with subsidies. In 1999, the year before national building regulations were eased, there were only 150 tower condos nationwide, but by 2016 there were about 800.
The NHK show was particularly interesting to us, not only because we once lived in a high-rish in the shitamachi district of Tokyo (we rented, though), but also in the past resided in the two cities that were profiled in the report, Kawasaki and Saitama. In the case of the latter, when we lived there it was before the merger of Urawa and Omiya, and there were no tower condos near Omiya station, one of the biggest transporation hubs on the Kanto plain. Now, within walking distance of the station, there are 2,700 relatively new condo units in skyscrapers, and they’re very popular, it seems. A new building that recently opened has 776 units and they all sold out almost immediately. NHK visited one couple with two kids who bought their 3LDK, just four minutes from the station, for ¥50 million two years ago, which is about ¥10-20 million cheaper than such a place would cost in Tokyo. The wife works in Takadanobaba and the husband in northern Saitama prefecture, so their home is right in the middle. The say they are “100 percent” satisified with their purchase, and NHK attributed the popularity of tower condos to the kind of facilities they offer. This particular building included a gymnasium, a theater room, a music room, hotel rooms for guests, a dance studio, and lots of amenities. Read More
It’s become an almost trite litany in the media: the poor become poorer and the rich richer, with the middle class mostly shrinking and absorbed by the former. The conventional narrative says that free market capitalism makes this so, as governments in the free world become “smaller” and thus less likely to regulate economic functions. But more fundamental to the issue is the idea that priorities are shifting away from the poor.
An article in the Dec. 3 Nihon Keizai Shimbun reports on a survey completed by the Ministry of Internal Affairs and Communications in September and just released to the public. The survey collected data from local governments regarding public buildings, including apartments and schools. One of the more startling statistics is 12,251, which represents the total number of these buildings that local governments throughout Japan, both prefectural and municipal, want to tear down. The estimated cost of this mass demolition would be ¥403.9 billion, a huge burden for municipalities, most of which are cash-strapped anyway. But the cost of maintaining these buildings is probably higher, since it’s an ongoing expense. The reasons local governments want to tear down these buildings is simple: they’re old–the average age is 41 years–and the population is expected to continue decreasing. This number doesn’t include buildings that will be renovated or replaced after they are destroyed. It’s only buildings that will be gone for good. At the time the survey was conducted, 40 percent of these buildings were in use, while 47 percent were not in use at all and were thus shuttered. As far as plans for demolition go, 32 percent will be torn down “within a year or two” while the fate of 41 percent was “not known” at the time.
It’s a huge number, but if you’re at all familiar with construction trends in Japan it’s probably not shocking. Just walk through any business district in Tokyo and marvel at how many new skyscrapers are going up, replacing other buildings that were put up only thirty or so years ago. Buildings in Japan are notoriously short-lived, and, of course, outside of the large cities there is even less reason for keeping buildings that no longer serve a function. Populations and tax bases continue to shrink, so there is no need to maintain a school that has no students, or a public housing project that’s only 30 percent full. Read More
Earlier this week the national tax agency announced that, on average, land values throughout Japan went down 1.8 percent, raising hopes in financial circles since it’s the lowest drop in a long time. Any sign that the economy is improving is given a lot of play in the media, though a closer reading of the statistics indicates it may not be what it seems. As almost all the stories point out, the main brake on the drop in property values was the sudden surge in sales of luxury condos in the major cities. If you discount those sales, much of which is being spurred by overseas investors, the drop in value is pretty much the same as it’s been for the past decade or so. In Asahi Shimbun’s coverage, a reporter talked to a 37-year-old salaried worker who was looking to buy a used condominium in Ichikawa, Chiba Prefecture. He found one that was very cheap and only 10 minutes from Motoyawara Station, but was disappointed by the “undeveloped” quality of the neighborhood. A local realtor told the reporter that his business has not changed at all. Property values in the area are 4.7 percent less than they were a year ago, when the values were 4.4 percent less than they were in 2011. “The only place that’s any good is the center of Tokyo,” he said.
Another realtor in Kofu, Yamanashi Prefecture, told the paper that the value of properties near the main train station declined 3.8 percent over the previous year, and he didn’t sound hopeful, citing the fact that there has been no increase in the last year of “inquiries for home remodelings” that actually lead to contracts for work. “That’s because nobody’s income has increased.” The media was expecting a rush on home sales prior to the increase in the consumption tax next April, and until May, housing starts rose year-on-year for nine months straight. That statistic may go south, however, since there is a suspicion that interest rates will also go up in line with the government’s monetary easing policy, thus discouraging some potential new homeowners. Almost everyone Asahi talked to, from realtors to securities analysts, believe that the situation won’t change significantly unless average people start making more money.
Cat Foreheads & Rabbit Hutches 