Suburban blight, Japanese-style

img_20161223_114702In our latest housing column for the Japan Times we talk about a new book by Chie Nozawa that explains in simple, clear terms why more and more abandoned homes, both houses and condos, will litter the landscape in coming years. She gives a lot of good examples of the kind of city planning, or, more precisely, lack of city planning, that has given rise to over-production of housing even as the population in general is shrinking and homes are left vacant.

Last week, she published an article in Gendai Business that summarizes and elaborates on the book. (Gendai is published by Kodansha, which also published her book) Her main thesis is that housing is “no longer” a financial asset, though we would probably argue that it never really has been. She points out that by 2033 one out of every three homes in Japan will be vacant, and that if nothing is done–either through demolition or some program to make more effective use of existing housing–there will be 21.5 million vacant homes in Japan. She give two reasons based on the fact that the huge boomer generation will be dying out in large numbers: 1) the homes the boomers have inherited from their own parents will be empty; 2) the homes the boomers built themselves will be empty because their own children built their own homes and thus have no reason to take those homes over. It seems almost redundant for her to mention that these homes, unless they are located in major cities on desirable land, have no value whatsoever. The homes that boomers now live in are old, and so their heirs cannot possibly move in or sell or rent them without extensive renovations, which is not liely to happen given the nature of the housing market, which is all about new things, as we pointed out in our column.

img_20161223_114841Thus, these properties have “negative value,” meaning regardless of whether the heirs tear them down or improve them, they will have to spend money that they will never see again because it will become increasingly difficult to sell or otherwise liquidate these properties, most of which are in the suburbs. And the more there are, the worse this problem gets.

This vacant house problem brings about what Nozawa calls the “sponge phenomenon.” In English parlance we might refer to it as the Swiss cheese effect: The suburbs of major cities, and even the cities themselves, become pocked with holes of vacancies that further erode surrounding property values and scare off younger potential homeowners, who gravitate instead to the nearest brand new ultra-cheap, ultra-cramped subdivision. Nozawa gives examples of regional capitals where this effect is already in full swing: 20.8 percent of the homes in Kofu, Yamanashi Prefecture, are vacant.

img_20161223_114030Vacant housing comes in four types: rental housing that is presently uninhabited, vacant houses on sale, secondary housing (vacation homes, etc.) that is unoccupied almost all of the time, and abandoned housing, meaning not for rent or sale, merely empty. Nozawa provides statistics showing that of these four type, the last, abandoned housing, is increasing at the fastest rate. She also shows the direct relationship between the amount of new housing being built in a town or city, and that locality’s portion of vacant housing. In most cases the more building that’s happening, the higher the number of vacant homes. A few enterprising spirits are trying to address this problem. One local real estate company in Higashi Matsuyama, about 50 kilomters north of Tokyo, is actively buying up small lots in these sponge-like neighborhoods and combining adjacent ones to make larger lots that can accommodate larger houses, but in order to do that effectively the realtor has to locate the owners of land that in many cases has been abandoned for a long time, and often that means negotiating with more than one reluctant heir.

It’s not a problem that is going away any time soon, or even later.img_20161223_115303

More Than Enough

Pamphlet from local government explaining how property is assessed

Pamphlet from local government explaining how property is assessed

We’ve written about Japanese property taxes a few times and in our JT column we once mentioned that the system for assessing property values and calculating the amount owed is complicated. Consequently, local governments, who do all this work based on laws implemented at the national level, sometimes make mistakes.

Apparently, the problem is even more widespread than we thought. According to a survey conducted by the Ministry of Internal Affairs, between 2009 and 2011, 97 percent of local governments reported at least one case of overcharging for property taxes, though, of course, that would indicate there are probably many more cases. A recent issue of the tabloid-style weekly Friday interviewed an official from a support network for “asset preservation” who pointed out that property taxes are very different from income taxes in that they are completely determined by the authorities. With income taxes, at least the taxpayer can see how his taxes are calculated since he has the documents with all the pertinent information. But property taxes are determined by the local tax office and the property owner simply receives a bill every year saying how much he owes without any explanation of how the bill was calculated, and unless the taxpayer has knowledge about the property tax laws and how they may apply to his particular circumstances, he won’t know whether or not the amount charged might be wrong.

The extent of the problem was illustrated in a feature in the Oct. 5 Asahi Shimbun, which cited a number of recent high-profile cases. Last May, the owners of apartments in a complex in Isehara, Kanagawa Prefecture, found out that they have been paying too much property tax for their units since the complex was built in 1972 by the then national housing corporation. Condominium values are assessed according to floor area, and almost all of the 600 units in the complex are about 63 square meters, but they also have verandas. The city tax office was including the verandas, which are about 8 square meters, into the assessment, but verandas are considered kyoyo, or common property, meaning they don’t belong to individual owners, but rather to all the owners, just like corridors and building foyers. The assessment for common property in a condo is divided up among all the owners but taxed at a much lower rate than property that is owned individually. Read More

Too late?

Last Friday, several media reported that the land ministry released a new white paper on land and property usage based on research carried out last year. The conclusion of the study is hardly earth-shaking to anyone who reads this blog, but it’s nevertheless noteworthy. The paper says that the market for older homes and commercial properties should be expanded by maximizing their value through renovation and rebuilding. Though the Cabinet Office’s recognition that Japan is overwhelmed by superannuated, deteriorating structures is a step in the right direction, it’s difficult to understand if anything can be done about the problem as long as policies for promoting new building continues as it is.

According to the government’s findings, more than 30 percent of office buildings in Japan are at least 30 years old, meaning they were constructed before current earthquake-proof standards were implemented. Consequently, 90 percent of “real estate investors” are not interested in these buildings. The paper recommends that they be quake-proofed in order to “increase the stock of good quality” structures. It also advocates promoting energy efficiency so as to make the buildings more desirable. Such renovation will “increase the value of real estate” in general by reducing running costs. The government also concluded that as a result of last year’s major earthquake people’s “thinking about real estate” has changed: they are now more aware of “land quality.”

None of the news reports we’ve read have indicated what the government will do, if anything, to follow up on the findings of the white paper. Tax breaks for people who fix up older properties? That might work but seems unlikely given the government’s current craze for tax increases. The construction industry will certainly welcome any renovation boom sparked by tax cuts but it isn’t going to be happy if such renovation comes at the expense of new building, which is where the money is. Increasing property values in that way has never really been in the government’s interest.

Unreal estate

“Property prices go up and down, but the main thing is not to pay them a blind bit of notice, unless and until you have a good reason to move. I learnt that a rising price will not rise forever; that when prices stop rising, it will be difficult to sell your flat, because the reason the price has stopped rising is because the climate has changed. The money you have in your house is not liquid money; it’s not money which can easily be converted into something else other than your house. It’s stupid to feel richer beause the value of your house has gone up, since the resulting rise almost always isn’t money you can use or spend. If you’re going to move, you still need somewhere to live, and the cost of that place too will have gone up, so there will be no net gain from the increase in your property’s value.”

In the above passage from his book about the credit crunch, I.O.U., John Lanchester is mainly talking about the United Kingdom, where he lives. However, his remark about needing somewhere to live and the notion that property value means little in the world where most people do live has stayed with me. Elsewhere in the book he tosses off the idea that the value of your house or apartment or land is only as much as the other guy is willing to pay you for it, in the end. Read More

Dying to get in

Who died here?

Further on the subject of the property values of places where people died, which was started in the comments section of the previous post, there was actually a book titled “Tokyo Laundering” published last year about a fictional occupation: people who are hired by landlords or realtors to live for one month in houses or apartments where people just died. By having somebody occupy the place legally, the owner can rent or sell the property at its listed value rather than the cut-rate price that most owners are compelled to advertise for such a property since, according to law, they have to tell prospective buyers/renters that a person died there. If someone lives there for a month, they’re no longer obliged to reveal that information. It’s such a clever subterfuge, we’re surprised no one has actually put it into practice.

As far as we know, the only outfit that openly advertises such properties is UR, which lists rental apartments where people have died for something like half the normal price for up to two years. Supposedly, within their system 300 units become vacant each year because someone died. We’ve also heard of realtors soliciting doctors, people in the funeral business, and foreigners for such properties since such people usually aren’t grossed out by the idea of someone having died in the place they just moved into. There’s also a website that lists properties where “incidents” occurred, and though they detail the incident that took place (with the help of inadvertently humorous illustrations) and even show you the location on a map, you’ll need to do a bit of detective work to find out about renting or buying, since all they give as contact is the name of the realtor or owner. It’s a great site, however, for those into ghoulish walking tours.

And lastly, some insurance companies offer coverage to landlords for apartment deaths. If a tenant dies in one of their properties, they can receive up to ¥1 million, which should cover the money lost as a result of an extended vacancy or decreased rent.

Go West

Potential buyers inspect land for sale in Fujino, western Tokyo

Two weeks ago we were at the UR office in Yaesu helping some friends get around the application process and asked the employee about availability. Though there was no ulterior motive behind the question, the woman volunteered that a lot of residents in UR high-rises in the waterfront area were moving out after the earthquake. We were slightly taken aback: Only a semi-public organization like UR would admit to potential renters that people were anxious to leave their properties.

Upon further investigation, we found that the story is a bit more complicated, at least when it comes to buying and selling property. According to various news reports, there has been a notable increase in interest in the Musashino daichi, or plateau, which covers parts of Western Tokyo and Western Saitama Prefecture. This is considered stable land, meaning no risk of liquefaction. The waterfront, of course, is all built on landfill, but there are many other areas located inland that suffered soggy ground after the Mar. 11 earthquake, such as Abiko in Chiba and Kuki in Eastern Saitama, communities that were built on ground that used to be swampland, rice paddies, or even ponds. Usually, you can determine the kind of land an area once was by consulting an old map. If the old name contains words that indicated water, like numa (marsh), then you might want to make sure your foundation is built on piles. In fact, a lot of developers change the names of such places so that people think they were built on solid rock (almost any subdivision with the word oka–hill–is a dead giveaway). Read More

Getting what you pay for

Room with a view, sort of

Last weekend we traveled up to Nikko to look at properties. Along the way, we could see the damage caused by the earthquake that hit southern Tochigi Prefecture the day before, mostly in the form of blue tarp hastily stretched across roofs where kawara tiles had broken loose. Kawara tends to be used in more traditional houses and is considered to have better weather-proofing and climate control properties than regular shingles. However, they are notoriously difficult to apply and easily come loose during earthquakes. Roofers throughout the Kanto and Tohoku regions are raking it in right now.

Nikko is one of Japan’s most historically significant places and a UNESCO World Heritage site. It was combined with several other neighboring towns and villages some years ago, and the area we visited is in the residential district to the south of the famous temples. In that regard, it isn’t significantly different from your average suburban residential area–meaning it’s cramped and nondescript–though the surrounding mountains and abundant pockets of wooded areas and terraced farmlands give it some character. The first place we visited, in fact, was in a development originally subdivided for besso (second homes). We got off at Tobu Shimo Goshiro station, which was small enough to not have a ticket wicket (we were on the honor system and only required to drop our tickets into an unattended box), and walked for 25 minutes through rolling hills and past the old cedar-lined Nikko Kaido to the subdivision, which didn’t really look like a subdivision when you approach it from the main road. Situated in a grove, it did look like a besso community, meaning the homes were varied in style, shape, and size. The property we were looking at was in the middle, next to a golf course, and the real estate agent from a Shinagawa-based company called Mount, who was going to show us all the properties, was already there getting the place ready for our inspection. Read More