Can Japan level its problem with vacant buildings?

by and

On July 29, the Ministry of Internal Affairs and Communications released the results of its latest survey on Japanese housing, which it completed last fall and conducts every five years. The statistic that caught the media’s attention was the one for akiya, or vacant homes. As of the end of October 2013, 13.5 percent of all housing units in Japan were empty, which is 0.4 percentage points higher than the portion in 2008, the last time the survey was carried out.

The rate itself is considered high, even if the increase over five years seems slight. The fact is, the overall housing stock has increased during those five years. In 2008 there were just over 7.5 million vacant homes in Japan. Now there are at least 8.2 million, which is a rise of 9.3 percent. The reason for the discrepancy is that so many new homes were built in the meantime while a larger percentage of existing homes went vacant or were abandoned. More importantly, few of these older, derelict homes were torn down.

Though the number of akiya has been growing for many years, the central government has done nothing about it. These new statistics, however, cannot be ignored. Vacant houses are fire traps and sanitation hazards. They also bring down surrounding property values — or, at least, they do in most developed countries. In Japan, vacant houses are usually found in neighborhoods containing homes that are just as old, and regardless of whether or not they are occupied, houses of a certain age have no market value in Japan, so nobody worries about that aspect of akiya.

After the report was published, the government announced that it would finally address the akiya problem. The ruling coalition plans to send a bill to the Diet this fall to promote the renovation or removal of vacant homes. According to the land ministry, about 350 local governments have laws that regulate the disposal of derelict structures. In most cases, these laws stipulate that if a house remains vacant for a certain period of time and poses a health or safety hazard, the local government can order the owner to demolish it.

If the owner doesn’t respond within a certain period of time, then the authorities can demolish it themselves and send the owner the bill. However, this strategy has not proven to be very successful. It costs several millions of yen to demolish a house and remove the debris, and the reason most owners don’t do it is because of the high cost. If the local government does demolish a vacant house, it usually just gets stuck with the bill because the owner can’t pay. Consequently, most local governments don’t demolish houses on their own.

One purpose of the central government’s planned bill will be to subsidize this sort of demolition. In order to accomplish that, it will need to enforce the concept of eminent domain, which is rarely applied in Japan since national and local governments are hesitant to infringe on private property. That’s why it takes so long to complete public works projects and why many roads and railways are built on land that is already publicly controlled. The relevant authorities have to negotiate with the owners of the land they want to condemn for these projects.

According to a report in Tokyo Shimbun, the coalition bill will set up guidelines for determining what sort of vacant houses can be targeted for demolition in terms of sanitation, safety and overall environmental quality. Local governments will use these guidelines to identify dangerous derelict houses and access local tax data and other means to locate the owners. The local government can then apply to the central government for subsidies to tear down the house if other means prove ineffective.

Another problem the government needs to address is the property tax system. Besides being wary of the cost of tearing down a structure, property owners are slapped with a much higher tax bill when land they own has no building on it. As it stands, the property tax law, which is implemented by the central government, has a special provision that reduces the tax on land to one-sixth its assessed rate if the plot has a structure on it. That means owners of land with vacant houses will suddenly see their property tax bill increase sixfold after demolition, so the central government needs to adjust the tax rules in order to gain cooperation of property owners.

If subsidizing demolition sounds like a desperate solution to the akiya problem, it’s because the central government’s housing policy since World War II has made widespread derelict housing an inevitability. The government itself releases no statistics on sales of existing homes because they have never cared about existing homes. Land is considered an asset; houses are not, unless they are located in major cities such as Tokyo or Osaka.

The government only cares about new homes, which is why it only subsidizes new housing with tax breaks and incentives. In the U.S., the ratio of new-home sales to existing home sales is about 1 to 5. In Japan, it’s the opposite. Existing home sales in the U.S. is an important economic indicator and often drives the stock market. In Japan, sales of existing homes have no affect on financial activity. Many real estate agents don’t even deal with them.

Thus the akiya problem will only get worse as the baby boom generation continues to retire and die off. Traditionally, homeowners passed their property on to their children, but the children of boomers have already bought their own homes and the trend for young people now is to move out of the suburbs and back to the cities, in order to be closer to where they work. Until now, most non-rental vacant housing has been concentrated in rural areas, but soon it is going to be a big problem in the suburbs of major cities.

Though it’s obviously too late, the central government and local governments have finally decided to address the existing home issue, but they haven’t gone beyond statements of purpose. The problem is that they don’t want to promote existing homes at the expense of new construction, which has always been central to the government’s growth strategy. Last year, in fact, thanks to the anticipation of the consumption tax increase, new housing starts increased at the highest rates in years: an 11.5 percent increase in the number of people building houses on land they own, a 15.3 percent increase in new rental housing, and a 3.8 percent increase in housing built by developers.

At the same time, all prefectures except Tokyo saw a year-on-year increase in the number of existing homes that went on sale. The housing market will continue to be over-saturated with available units, which could lead to a collapse in prices, thus confounding the government’s scheme to boost inflation. Housing expert Hidetaka Yoneyama told Asahi Shimbun recently that vacant homes should be commandeered by local governments and turned into desirable dwellings for “migrants” or even low-cost public housing. Moreover, the authorities must rethink its policy of privileging new home construction at the expense of existing home sales.

But at the bottom of the problem is quality. The main reason there is no existing housing market is that existing houses are junk for the most part. The government never regulated quality or encouraged home improvement because its only goal was to sell new houses and condos, and the country is filled with fire traps and eyesores. Boosting quality at this point won’t affect the current existing housing market, but it might create one for the future — if there’s anyone left to buy homes in the future.

Philip Brasor and Masako Tsubuku blog about Japanese housing at catforehead.wordpress.com.

  • Jeffrey

    “If the local government does demolish a vacant house, it usually just gets stuck with the bill because the owner can’t pay. Consequently, most local governments don’t demolish houses on their own.”

    Simple answer to this is confiscation. The local housing authority simply seizes the derelict property. If they can sell it, then they do, take a fee for razing the structure and any associated costs, take a modest penalty fee for the nuisance of it all, and then pay the owner the remainder.

  • Stephen Kent

    “The main reason there is no existing housing market is that existing houses are junk for the most part” – I have to say the quality of housing is always something I have been surprised at in Japan; it seems to me that the approach has always been, even in urban areas, to ensure that the value of land remains high while minimizing the cost of the actual buildings people live in (as well as any costs associated with town planning) because it’s going to be torn down again in 20 years to make way for another temporary, energy inefficient, cramped residence.

    With the country’s ageing population and shrinking workforce, surely the last thing you want is for labour to be locked up in the construction of more houses when there are other things that need to be built (nursing homes, kindergartens, paths along the sides of roads for pedestrians, that sort of thing) so I think the best thing would be to introduce quality standards and ensure a minimum usable lifespan for a building. However since the current leader is bent on “restoring Japan” to exactly the way it was 30 years ago I suppose there’s little chance of that happening.

  • TLD_0819

    PM Abe had proposed 10-year ‘Demolition Bonds’ to help finance the removal of these abandoned properties. Time will tell if helps.

  • Stephen Kent

    Thanks for that information Jeffrey. So basically only traditional old houses were made with wood actually produced in Japan, and these days the wood mostly comes from overseas? If there are no types of wood in Japan suitable for making the frame of a house, that would seem to call into question the wisdom of Abe’s forestry policy.