While a house may be a strong investment option abroad, in Japan they are a guaranteed source of negative equity — but why?
In many Western countries, houses are passed down through generations or sold for a windfall when people decide to downsize; however, this could not be further from the truth in Japan. Doomed from the moment construction begins, the average Japanese home depreciates from Day 1 — losing half its value in 10 years and becoming almost entirely worthless in 25. This depreciation comes hand in hand with the infamous mantra that a Japanese home is limited to a lifespan of 30 years and causes somewhat of a chicken-and-egg conundrum.
The notion has been perpetuated by the government following a study of demolished homes (which ignored the much older properties still standing). Its impact has succeeded in relatively short-term boosts to the design and building markets, but long-term issues for personal wealth development, environmental impact and sustainable housing in the future.
The contradiction of a decreasing population and steady building rate of over a million new homes a year reflects a skewed system, which is at best impractical and at worst unforgivably unsustainable. Re-sale figures for homes in Japan are incredibly low and this is, in part, due to a tradition of remaining in a single-family home for many decades. Whereas abroad couples would move out, raise families and then downsize, Japanese families traditionally lived together with multiple generations sharing a home. Although this is changing, moving several times in a lifetime is still unusual.
Another common reason for re-sale: investment or portfolio growth is effectively impossible in Japan due to the market, meaning homes are built for the buyer, and no one else. While this offers a certain amount of freedom in design — and undoubtedly contributes to Japan having the most registered architects in the world — it means housing is a consumer commodity rather than an investment possibility.
There are a myriad of contributing factors to this depreciation, including both an unshakeable lack of perceived value as well as non-negotiable physical factors. Facing a massive housing renewal in the post-war period, Japan — especially in urban areas — was forced to mass-build structures in order to rehome those who had survived the war. The wooden-framed homes were poorly constructed, featuring little to no insulation and poor seismic protection. This is quite possibly the key to the modern mistrust of homes in Japan, as these were soon proven to be unsafe and became increasingly undesirable as time went on.
One practical factor which follows from this is the double-edged sword of attempting to keep up with the ever-changing seismic safety regulations. It results in families opting for modern housing which meets or exceeds current standards and makes use of the latest innovative materials. Those regulations ensure safety, but it leaves behind homes that are literally uninhabitable and others undesirable.
That factor is only a more recent version of a long-lived Japanese mentality of transcience — inevitable in a country where natural disasters can and have reduced homes, shrines and communities to rubble in seconds. Even the most important shrines in Japan face regular re-building which is seen as a chance for renewal as well as supporting an ongoing tradition of skills which would otherwise be lost. The mentality is one of adaptation and acceptance, but it is being challenged by improved building standards and inventions annually.
The value of land is an understandable side effect of this view, seeing as houses can be lost, but the ground they stand on cannot. This value was cemented during the bubble of the 1980s when the price of land rose extortionately, leaving houses to become little more than placeholders for the goldmines they sat on. While land value fell following the economic decline, urban land was only reduced by 1.7% from the peak overall, but the six major cities suffered an average loss of 17.9% on residential land.
Unlike many foreign housing markets, in Japan a home is considered separate from the ground it stands on, the latter of which holds or often increases in value. This demarcation explains why houses are constantly being rebuilt, while the land is passed on to families or sold in place of the home. Although this is some consolation, the land does not increase in value in the same way that properties abroad do and is sometimes only a leasehold in the first place.
While the practical elements are un-arguable, the attitude to housing could easily be viewed as a self-fulfilling prophecy. Due to the unlikely event of a re-sale, homes are not maintained — especially towards the end, and this leads to properties which are re-sold being dark, in need of repair and generally un-desireable. There are an estimated 10 million abandoned homes in Japan, both lowering local house prices (a negotiable issue) but also standing as a perpetual visual reminder that houses are decaying over time.
In a more practical sense, bank loans for new homes are far more accessible and easier to attain, as secondhand homes are seen as a less preferable investment. The ever-successful design and construction market is also invested in maintaining the status quo as both would lose out considerably if secondhand homes became popular.
Trapped in a market which forces them towards building new homes, buyers in Japan are unable to develop wealth and negative equity is the norm, despite often being considered a disaster in many economies. While homes in the West are expected to do the reverse, in Japan loss is expected and unquestioned, but leaves families with little to show for what would (elsewhere) be the biggest and often the most rewarding investment of their lives. On a larger scale, the loss equates to 4% of Japanese GDP, as money simply vanishes over time.
When compared to countries like the UK, for example, in which 60% of homes are over 50 years old, the difference carries both benefits and problems. On average between 1988 and 2018, the typical London detached house has rocketed from GBP 200,000 to GBP 900,000 while the more common semi-detached homes have risen from GBP 100,000 to almost GBP 600,000. While this increase allows families to accumulate and pass on wealth to their families or pay for care in the future, it does create a strong wealth divide and has contributed significantly to the UK housing crisis. In Japan, these issues simply do not exist — mortgages are widely available, sometimes offered to cover the costs in full rather than requiring a hefty downpayment which is a real bonus for a nation constantly in the bracket known in the West as first-time-buyers.
Things are changing, however, as the government acknowledges the impractical nature of this insatiable desire for the new. Introducing targets for secondhand home sales by 2020 and improving the home surveyance system are a promising start. It suggests Japan may not be too far behind its neighbours in the move to make homes a more long-lasting presence on its streets.
By Lily Crossley-Baxter
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