Property Markets Work Better When the Line Doesn’t Always Go Up


These days, when Japan’s real estate market makes headlines at all, it’s usually for the wrong reasons; the millions of homes sitting empty across the country, perhaps, or the notoriously bad investments that home buying can prove. The home can often be worthless until the buyer pays off the mortgage.

But look at it from the perspective of housing as a roof over people’s heads, rather than valuable storage, and Japan starts to look successful.

Even in these post-Covid times, the country is not facing an affordability crisis. Rents are stable, one of the main reasons why inflation is relatively low, and housing can be found for almost any budget. Few ever have to stand in line to view an apartment, and even now banks compete with each other to offer lower variable rate mortgages to buyers. With five times the population, Tokyo adds three times as much housing in a typical year as the whole of the UK.

Like most investments, what you need to get rid of is the idea that the line always goes up.

The message is flowing. As some other Asian locations look less attractive, most notably Hong Kong and Covid-Zero mainland China, wealthy buyers are beginning to view Japanese properties as prospective, low-yield investments or fallback plans. What it may lack in returns can be made up for in ease of access. Japan has so few restrictions on foreign land ownership that it may seem ironic that the government has only recently begun to legislate foreign land purchases near sensitive locations such as military bases.

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While all of this is helping new apartment prices in Tokyo finally reach bubble-era highs of more than 30 years ago, they have yet to materialize in the rental market;

It’s true that wages in Japan have continued to stagnate over the past decade, but residential real estate still looks more affordable than in countries where property values ​​have risen more than pay packages;

The view from Tokyo of hundreds of people queuing to view the small number of available properties in London, where the mayor wants to freeze rents because of the “rent cost” crisis or the US housing affordability disaster and its aftermath. – on the effects on inflation may indeed sound strange.

Basically, it’s a simple trade-off between supply and price; For 50 years, Japan had more apartments than people to fill them. Apartments bought in Japan are not likely to appreciate much, except for the most glamorous and lucky buyers in select locations. Owners also tend to prefer newer properties, which makes sense given the poor quality of older stock built in the post-war rush. Changes in building codes for land highly vulnerable to earthquakes and other disasters are also encouraging buyers to opt for new. That works well for supply, but means prices can’t be expected to improve continuously.

Legislation(1) encourages buildings to meet this requirement. Despite what politicians elsewhere may say, even in normally slow-moving Japan, housing has proven to be a problem that can be solved through legislation. Central government has been facilitating construction for decades, with the power and size of the developer and the construction industry no doubt playing a role. The 1997 deregulation is credited with the rise of condominium blocks of 20 stories and larger, known as “high-rises,” a move that made luxury new-build apartment buildings in up-and-coming urban neighborhoods affordable for the average worker.

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An added boost in recent years has been the rise of the “power couple,” supposedly elite dual-income households with a combined salary of around 14 million yen ($100,000). Because Japan openly encourages low interest rates and provides easy access to fixed-rate mortgages, a dual loan for an apartment worth around $1 million is not out of reach, although between Japan’s low wages and weak yen, power couples can get by. no more than the current equivalent of $50,000 each, which is well below the average individual salary in the United States. (2)

In 2002, Prime Minister Junichiro Koizumi’s administration enacted its “Urban Revival” policy, which placed greater zoning authority in the hands of the central government while encouraging private businesses to redevelop areas that had seen better days. This deliberately deprived local governments of the source of complaints about slow approvals; Officials elsewhere with similar problems may want to take note. Another thing. be prepared to part with some iconic architecture, as fans of the Nakagin Capsule Tower found out earlier this year.

Of course, not everything is roses in a Japanese garden. Oversupply may be preferable to the alternative, but empty homes across the country are still a problem that could be solved by incentives to demolish or sell as second homes. There will be a growing need for new communities to support an aging population in its sunset years. Shrinking rural communities have a once-in-a-generation epidemic-inspired opportunity to attract new talent moving to the country, something the government could do more to encourage. And despite the relative affordability of mortgages, it’s still very much the privilege of the full-time salaried class; the growing number of part-time workers may find it unnecessarily difficult to get approved for credit.

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Yet governments around the world, faced with cost-of-living protests, must ask: What is the country’s housing fund for? A store of value for those first up the property ladder, or something closer to a social good that should not be expected to increase in value any more than cars, roads, or rolling stock.

More from Bloomberg Opinion.

• Buy that house. Your retired self will thank you. Alexis Leondis

• Singapore house prices cannot defy gravity. Andy Mukherjee

• No tears please for the iconic Tokyo Tower. Gearoid Reidy

(1) Many of these regulatory choices are detailed in Emergent Tokyo, a must-read for architecture buffs that explains how organic systems and planning helped Japan’s capital become so distinctly Tokyo.

(2) The OECD puts the average US salary at about $75,000, while Japan’s is less than $40,000.

This column does not necessarily reflect the opinion of the editorial board or of Bloomberg LP and its owners.

Gearoid Reidy is a Bloomberg Opinion columnist covering Japan and the Koreas. He previously headed the North Asia news team and was deputy bureau chief in Tokyo.

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