Tokyo housing developments

A few interesting pieces on housing, construction and real estate in Tokyo and beyond caught my attention lately. I wanted to collect them here for future reference and research. I wonder whether what was once key to understanding Japanese cities’ success in dealing with unbridled urbanisation has become an impediment to its citizens enjoying the fruits of an affluent society today.

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The view from my balcony in Nakano, Tokyo (May 2016)

The oldest of the pieces I read, a Guardian article from 2014, laments Japan’s disposable home culture, which turns many a real estate principle on its head: On average, a home here lasts for just 30 years before it is torn down, as compared to about twice that age in the US and more than double in France and Germany.

House prices depreciate extremely quickly, with the average home (its structure that is, not the land it is built on) being worth nothing a mere 15 years after its construction. All this fuels a construction industry that builds way too many homes for a shrinking population. In effect, housing in Japan is a consumer good as opposed to a capital good and store of value as seen in most other countries.

Much of the substance of the article derived from a very interesting, albeit slightly dated (2008) research piece by Nomura’s Richard Koo and Masaya Sasaki, who develop these ideas in more detail. For further statistics on housing in Japan, the Building Center of Japan’s “Quick Look at Housing” is a great resource, as is the 2013 Housing and Land Survey, which provides myriad data tables in English.

How has this disposable home culture come about? History and culture are often given as explanations. Frequent fires and earthquakes have traditionally put a limit on a building’s lifespan. In anticipation of these cataclysms, a system of scrap and build emerged rather naturally.

World War Two and Tokyo’s second destruction in the inhabitants’ lifetime memory by Allied carpet bombing was the most defining and most recent of these cataclysms after the 1923 Great Kanto Earthquake: In Tokyo alone, 750,000 houses were destroyed, about a fifth of the total building stock. Many homes were rebuilt rather hastily in the years thereafter, never intended to be around for too long anyway, hopefully replaced once the economic situation would improve.

A lack of zoning and strictly enforced building standards helped, while a modicum of infrastructure was usually provided by local governments. In the late 1940s large swathes of Tokyo may have looked like a slum, but these areas were gradually upgraded in situ thanks to their inhabitants’ improved economic situation. Okata and Murayama (2011) state that:

As the planning system and sub-division control system in 1960s was still very weak, the level of infrastructure of those housing was very poor. However minimum level of urban services such as water supply and elementary education were mandatory responsibilities of local governments (the idea of ‘Civil Minimum’ was very popular in late 1960s in Japan), Tokyo was able to successfully accommodate the flood of immigrant population in not-informal settlement with no-less-than minimum level of living environment. It seems possible that if the planning power in Japan or Tokyo had been stricter before the 1960s then more illegal or informal settlements lacking minimum levels of infrastructure and social services would have developed, and Tokyo might have experienced much more serious problems in the 1960s and would not have grown into the world’s largest megacity.

This growth saw urban land prices soar, compounded by strong population growth in not only Tokyo but most major cities in Japan as well as high inflation. These high prices contributed to the reversal of the normal ratio of land / building cost seen in other parts of the world. As homeowners had to spend a disproportionate amount of money on land, their actual construction budgets would be squeezed.

A more recent article looks at Tokyo as an evolving city. I like the fact that its author, Richard Smart, does not take an overly nostalgic viewpoint towards the city’s change. Many traditional neighbourhoods with their Showa period charm are being transformed by ambitious and often high-rise redevelopment projects. In their wake, the typical hodgepodge of small shops and homes is being demolished.

However, can high-rise developments ever become cohesive living spaces offering their residents a real sense of community? The FT recently ran a piece investigating this very question, inspired by the proliferation of residential towers in London.

The economics of tall buildings, especially in Tokyo with its strict earthquake regulations, make them more expensive on a square footage basis than apartments in low-rise buildings or family homes, leading to unrepresentative demographics within their walls. These are wealthy, often single individuals or childless families living here. Also, retiring baby boomers are increasingly drawn to the inner city, eschewing their suburban life in exchange for living closer to their children and the attractions of urban life.

The fact that condominiums in high-rise buildings can also act as long-term investment makes them structurally different from the other living spaces in the city. Economic aspects such as resale value become ever more important. In Japan, the cheaper yen has also led to foreigners discovering residential and commercial real estate as a way of investing here.

So what happens to Tokyo’s communities amid these developments? Smart’s article quotes Christian Dimmer of Waseda University:

And then there is the matter of community. Tokyo’s new vertical cities lose something, says Christian Dimmer, an assistant professor at the Urban Design Lab at the University of Tokyo. “If you have apartments, it’s difficult to do structural changes with them,” he says. “It’s difficult to change the function of apartments. But Japan has very inclusive zoning. In the West, we have [historically had] exclusive zoning, which is strictly regulated, so you only have housing. Here, almost everything is possible everywhere. You have your 300 houses, and someone wants to open a clinic or a hair salon and they can do it. You have tremendous choice and adaptability that you do not have with a tower.”

Tokyo’s traditional built environment may signal impermanence and constant reconstruction, yet there are some unexpected qualifications.

Perplexingly, while buildings are built to last much less in Japan than in Europe and elsewhere, the average length of a tenancy is much longer than elsewhere, i.e. housing mobility is rather low. I haven’t got the exact data at hand just now, although I recall the average tenancy being ten years as opposed to about half that for the US. One wonders how can that be?

One the one hand, tenants’ protection is comparatively high, i.e. landlords cannot so easily get rid of them and/or increase rents. That is why rental agreements usually include sizable upfront payments, e.g. key money (a gift to the landlord) as well as only partially reimbursable deposits. Together with a downpayment on insurance premiums, new tenants easily dole out four to six months worth of rent before even getting the keys to their new apartments.

However, given the limited lifespan of a building and the incentives to scrap and build (relatively fast tax depreciation, high frequency of updates to building regulations, etc.), landlords also want to get rid of their tenants. One way of doing so is not to invest in the upkeep of the property especially towards the end of its life cycle. This is yet another factor explaining the short life span of buildings in this country that is not inherently at odds with low residential mobility.

An interesting consequence of lower residential mobility in Japan may be social cohesion, at least according to some social scientists. In “Divergent Paths to School”, Leonard Schoppa argued that because many Japanese remain stuck in one and the same place for much longer, there is a lot more local civic engagement than for example in the US. Incidentally, Schoppa (of Race for the Exits fame) has recently shed more light on the way kids take to school recently. He found that 98% of Japanese kids walk to school as opposed to only 12% in the US.

Coming back to the beginning of this post, the question that makes me try and tie together all these loose ends is rather straightforward: How did Japanese cities shape the way the economic miracle played out? In the immediate postwar period, their flexible, organic ways ensured fast reconstruction and resumption of manufacturing activity. In quick succession, Japanese cities would fuel a domestic consumption boom, itself the one of the keys to understanding the economic miracle. The white-collar urban consumer (and commuter) soon became synonymous with it.

And yet, today, after decades of economic progress, Japanese still do not enjoy the same housing standards than those living in other countries of similar, even less economic affluence. On average, less homes have sewage service, the average park area per person is tiny. Commuting times have recently actually increased (itself a corollary of limited residential mobility). There is a huge discrepancy in living standards between those who own and those who rent.

Thinking about progress and development, this may be one of the major surprises about understanding Japan’s postwar experience. If life here came to a standstill and we would return 100 years into the future, what would still be there for us to see? What traces of civilisation would still be left?

Lastly, I wonder about a few things:

For a country that has such short building life spans, home ownership is comparatively high at about 60%, and encouraged. And while terminology such as “housing ladder” does exist in Japanese, these words do not evoke the same associations as they do in other countries, especially places like the UK.

This ties into the notion of real estate as a store of wealth as compared to “just” being a consumer good. For those of us tired by the obsession with mortgages, buy-to-let, etc., Japan may have some interesting perspectives on offer regarding the centrality of living space in our imagination.

Income and wealth inequalities have increased considerably since Japan’s bubble burst in the early 1990s. I have written about Japan’s mini-houses as being an architectural phenomenon partially in response to this. So while home ownership and real estate price appreciation may not be as responsible for aggravating inequalities as in other countries, the housing market bears the signs of an increasingly unequal society nonetheless.

Finally, Smart’s article features a curious paragraph that I don’t fully understand:

These zoning laws, which have helped make Tokyo a city where every area has its own feel, as well as its own retail and restaurant experiences, have also helped keep property prices down—a person with a business is less likely to want to redevelop or upgrade his or her property. This has been instrumental in keeping Japanese growth down, extracting wealth from homeowners, and keeping purse strings tied. Without increasing property prices, it is difficult to see how one can get the typical household to be more adventurous with its money.

There are a few things here that don’t seem to make intuitive sense.

First, why would businesspeople have less of an incentive to redevelop or upgrade their property, especially as many of the small businesses in Tokyo saw their owners live on the same premises?

Second, as much of the above tries to understand, low Japanese house prices seem inbuilt into the system, and not so much a function of desirability, resale value, etc. as they are in the West.

Lastly, Japan’s household consumption, at 60% of GDP, surely has some room for more growth. But if it is to come in the form of debt taken out on inflated equity in order to reach US and UK levels, it may not be such a good idea after all.

 

2 thoughts on “Tokyo housing developments

  1. Hi Ben, thanks for taking the time to read the article and gather your thoughts on it. Always nice to receive feedback.

    To answer your questions:

    1) Small business owners are less incentivized to upgrade because doing so will lead to liquidity issues on what tend to be low-margin companies. A tofu shop not selling for a few months, for example, may not have much chance of survival. I’d even go as far as to say that many of these companies face a choice of closing or carrying on without much cash.

    2) I think you are 100% correct here. Housing seems to have been a function rather than investment for much of the postwar period in Japan, with assets accrued by offering your time to a company, which would provide for you over your entire working career. When the bubble burst, this system seems to have hit a dead end, which is part of the reason why there are so many problems today around deflation and stagnation.

    3) At a national level, I think you are right. More consumption for the sake of it fueled by debt is not a good idea in areas such as Shikoku for sure. For Tokyo though, there is the chance of a new city emerging that can maintain sustainable growth for at least a few decades (2030 is when experts see an end to population growth, but by then who knows where we will be in terms of tech, immigration etc.)

    The choice to me seems pretty stark: Tokyo either stays where it is or it gives redevelopment, led by big money, a go. I have no idea which option will win out, but in Musashi Koyama, there are genuine signs that the community is strong enough to make redevelopment desirable and get the local economy into gear. A lot of small businesses are moving into or within the area in anticipation of the new tower. Once it opens, we will see the real effects, but at the moment the place looks like it is on the right track for becoming a Koenji-style popular area.

  2. Thanks Richard, for getting back.

    I think you are absolutely right in that there are a lot of low-margin businesses here whose owners often cannot afford expensive maintenance of their shops/homes.

    Their scruffy-looking establishments do stand out and in certain areas may even put a damper on the real estate market. I wonder though whether that is a structural problem capable of explaining low Japanese house prices in general. After the war, many manufacturing business owners upgraded their workshops and their attached homes as their fortunes improved.

    The other reasons as outlined by Koo and Sasaki seem somewhat stronger to me in explaining low house prices, especially low housing quality resulting from building standards and skewed land price economics, a culture focusing on quantity not quality (helped by an eager construction industry), etc.

    I guess we need to be clear on why we’re having this discussion:

    - Does one focus on standards of living, i.e. ensuring that economic prosperity translates into better housing quality for all?

    - Or does one regard housing and homeownership as something that could translate into more economic growth, i.e. the transformation of homes into a capital good with a positive impact on people’s and hence the country’s balance sheet?

    Both issues are obviously intertwined, but I feel that focusing on the first one is more inclusive of those who do not own and may thus be more equitable.

    I don’t think that Japan needs a UK-style discourse on and obsession with homeownership and the “housing ladder”, etc.

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