Japan's property markets
Jan 3rd 2008 | TOKYO From The Economist print edition
Homes in Japan last for only 30 years. The government wants to change thatHOUSES in Japan are supposed to be built to withstand earthquakes. Even so, few of them defy demolition for more than a few decades. The housing stock is amazingly young: more than 60% of all Japanese homes were built after 1980 (see chart). That is because there is almost no market for old homes in Japan. New legislation to be put forward this month will try to remedy that.
The roots of Japan's unusual housing market go back centuries. Buildings were often razed by earthquakes or fire, so durable houses were rare. Earthquake insurance largely did not exist until the 1990s (and even today is little used).
In post-war Japan land has value but buildings do not. The law separates the ownership of the land and the structure, so the two are distinct in Japanese minds. After the war, the government sought to foster private home-ownership by offering tax incentives for new buildings. The policy was a great success. Arguably too great: by 1968 there were more homes than households to occupy them.
At the same time, tax burdens abound for selling land with old buildings. After around 30 years homes are demolished for new ones to spring up. Because the lifetime of houses is short, cheap construction materials are used and the buildings are not maintained. There is no tradition of do-it-yourself home upkeep. Just as there is little interest in secondhand furniture or clothes among the sanitation-obsessed Japanese, so too home-owners prefer to build anew rather than refurbish the old.
There is also a dearth of institutions and expertise that might oil the gears of a market in old houses, from surveyors to judge the quality of a property to banks that assess its value and provide a mortgage. As a result, where 89% of British homes have had more than one owner, and 78% of homes in America and 66% in France, only 13% of Japanese homes have ever been resold.
But attitudes today are changing. The constant rebuilding places an unnecessary drain on people's financial resources, says Koichi Teramoto of the Ministry of Land. A couple easing into retirement may demolish their house to sell the land in order to move into a smaller abode that they must then build from scratch. Although better-built homes cost more up front, they cost far less over time—as much as one-third less after a few generations, according to Mr Teramoto. The ministry also worries that the constant demolition is terrible for the environment.
The costs to the wider economy are also great. A home is more than a man's castle: it is typically his most important financial asset. Not in Japan. For most of the post-war period land prices soared, so the lack of a housing resale market was not a problem. But since the bursting of the property bubble in the early 1990s, most land prices have fallen: some are as much as 80% off their peak. That houses also depreciate in value constrains consumption and adds to deflationary pressures; which in turn pushes people to be particularly cautious savers (more than 50% of Japan's household wealth is kept as cash in bank accounts) and helps to keep interest rates barely above zero.
To remedy the problem, the prime minister, Yasuo Fukuda, this month plans to introduce new tax rules to encourage the construction of more durable buildings. Under a draft of the “200-year homes” policy, national, regional and municipal property taxes may be reduced by between 25% and 75% for up to seven years for houses that adhere to robust building standards. Mortgages for such homes can be longer (50 years as opposed to the traditional maximum of 35 years) and building approvals will be simpler.
Property experts think these measures are too timid, however. They argue that a true market for used homes needs standardised methods of construction, as well as more transparency about the quality and value of houses. Far more generous tax incentives are vital too. Until then, homes in Japan will continue to fare like the country's ubiquitous electronic gadgets: be treated as disposable.