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Vacant homes highlight hole in ‘Abenomics’

Building more houses while population ages and shrinks is a recipe for future ghost towns

by Kathleen Chu and Katsuyo Kuwako

Bloomberg

Pieces of broken wood dangle and sway like autumn leaves from the window frames of vacant homes in the Inariyato district in Yokosuka, Kanagawa Prefecture, where taped-over mailbox slots tell a story of abandonment.

More than 50 houses and apartments, almost 20 percent of the quaint residential neighborhood of narrow streets and stairway paths leading into green hills, are empty here, an hour’s train ride south of Tokyo and 900 meters from the Yokosuka naval base, home of the U.S. 7th Fleet.

But that hasn’t stopped developers from building at least eight new apartment blocks in Yokosuka in the past two years.

Prime Minister Shinzo Abe’s plan to boost the economy in part by reviving the housing market and encouraging new home construction is in conflict with Japan’s demographics.

Rural, suburban and less-desirable urban areas are becoming littered with empty homes as the influx of younger people to the cities combines with one of the world’s fastest-aging populations.

At the same time, tax breaks on mortgages favoring new-home purchases, recently extended to 2017 and increased to ¥50 million from ¥30 million, are spurring demand for new properties.

“Even when the number of vacant homes is on the rise, more and more new homes are being built,” said Hidetaka Yoneyama, a senior researcher at the Fujitsu Research Institute who has written several books on Japan’s housing market. “That’s absurd.”

Home vacancy, estimated at about 18 percent of housing nationwide, may reach 24 percent by 2028, he said.

Vacant homes have risen 1 percentage point every year from 13 percent of housing stock in 2008, before Abe’s stimulus policies, according to Yoneyama’s estimates. With 57 million homes in Japan as of 2008, the last time the government counted them, at least 570,000 without occupants are accumulating every year, he said.

Housing starts have increased by 31,462 units a year over the past three years, according to the Land, Infrastructure, Transport and Tourism Ministry.

Helped by Abe’s strategy since he took office in December, housing starts rose for the 11th month in July, the longest streak since February 1994, ministry data show.

Recently constructed units in Kanagawa Prefecture, excluding Yokohama, cost ¥37.7 million on average, according to a report by developer Haseko Corp. A vacant two-story, traditional house in Inariyato with five bedrooms is listed on Suumo, a real estate search engine, for just ¥6 million. Surrounding houses are empty, too.

“Is it really OK to continue to build more and more new homes?” asked Wataru Sakakibara, manager of the real estate group at Nomura Research Institute Ltd. “We can’t stop housing stimulus because it revitalizes the economy, but we must consider ways to resolve this issue.”

Abe’s policies have also helped boost revenue for real estate developers including Sekisui House Ltd., the nation’s second-biggest home builder. Sekisui on Sept. 5 raised its earnings forecast by 22 percent for this year on increased demand. Daiwa House Industry Co., the biggest home builder in Japan, said it expects earnings to reach a record ¥73 billion for the year ending next March 31.

Low mortgage rates are helping spur demand. A fixed-rate, 35-year loan for a new home is 1.9 percent, skirting April’s all-time low of 1.8 percent, according to the government-affiliated Japan Housing Finance Agency. That compares with a 30-year mortgage rate of 4.57 percent in the U.S., Freddie Mac data show.

The plan to increase the consumption tax next year, including on housing, to 8 percent has also boosted demand. Developers are seeking to profit by putting more apartments up for sale as buyers rush to acquire them before the increase comes into effect.

The number of condominiums for sale in Tokyo and surrounding areas rose 53 percent to 4,145 units in August, the biggest same-month increase since 1996, according to the Real Estate Economic Research Institute. Units in Tokyo cost an average of ¥56.4 million, according to Tokyo-based Haseko, which builds condominiums.

Abe’s stimulus plan may also include relaxing restrictions to allow developers to construct taller office and apartment buildings in urban areas.

About 20 percent of residential areas will become ghost towns — devoid of population — by 2050, according to a land ministry forecast. Once an area reaches a tipping point of 20 percent home vacancy, it quickly turns into a ghost town as remaining residents flee seeking improved access to services and shops that inevitably close, Nomura Research’s Sakakibara said. Inariyato is about to reach it.

“The social impact of vacant homes is huge,” he said. “Local areas will lose their vitality as more and more homes become empty.”

In the U.K., just 2.3 percent of dwellings are vacant, according to the Department for Communities and Local Government in London, and 11 percent of homes in the U.S, according to the Census Bureau. Just 2.6 percent of Japanese homes were vacant in 1963, according to the Internal Affairs and Communications Ministry.

Yoshie Okada, 64, remembers those days. In Inariyato, Okada runs the public bath her grandfather acquired just after World War II. Sitting at a high-rise wooden counter in the middle of the separate bath entrances for men and women, collecting ¥450 fees, Okada said the number of bathers has halved in recent years.

“We don’t see many young people here,” said Okada, who looks two decades younger than her age, as beads of sweat ran down her neck in the heat. “We don’t know how long we can continue our business, as the majority of our visitors are elderly.”

The public bath, called Kame No Yu, which means bath for turtles, a symbol of longevity in Japanese culture, is one of two that are left in the area out of about five, she said.

The number of elderly in this area of Yokosuka, on the other side of the train tracks from the U.S. Navy base, have more than doubled in the last three decades from 1983, while residents younger than 15 have dropped by half, according to a survey by the Yokosuka Municipal Government in 2011. The city’s population has fallen 3.5 percent over the past two decades. People 65 and older account for more than a quarter of Yokosuka’s population of 418,325, according to the Statistics Bureau in the internal affairs ministry.

Businesses have closed. Saikaya Co., a 62-year-old department store, shuttered one of its three Yokosuka locations in 2010 after filing for bankruptcy because of declining sales, according to statements released by the company.

The 2,600-sq.-meter store was sold to Ichijo Co., a condominium developer, which later canceled its plan for a 23-story apartment building and is turning the space into a parking lot.

“The construction of more new housing only leads to more vacant homes,” said Noriyuki Shima, chief examiner of Yokosuka’s planning commission who is in charge of luring homebuyers to the city, including the Inariyato area. “It’s best to put a stop to this.”

Residential land prices nationwide are still half what they were after the peak of the bubble economy in the 1980s. Prices for residential land sites in Tokyo have declined for each of the past 22 years except in 2007 and 2008, while the prices for land sites in regional areas have dropped for 21 years, land ministry data show.

The internal affairs ministry conducts a national housing and land survey every five years. The next one is scheduled for later this year, with results to be announced next year.

Abe has promised to loosen business regulations and increase government support to help reform industry as part of the “third arrow” in his three-pronged strategy to end decades of deflation and stoke a 2 percent inflation rate with radical fiscal and monetary stimulus.

Government officials have also said they may consider relaxing development rules in certain zones to meet demand for office buildings and residential space in metropolitan areas.

Part of the reason residents have left Inariyato is that it’s hilly. Some homes can be reached only on foot, though they reward residents with a view of the port. Those who came in their 30s or 40s a few decades ago now find it difficult to climb up and down in their elder years, said Shima of the planning commission.

“Now that the population is declining, the residents in the area all want to move down from the hill, but some just can’t because they will have to sell their land at a loss,” said Mitsuko Usuki, a 66-year-old resident who 10 years ago was able to move from her home of 30 years, renovate it and rent it out, in order to be closer to the train station.

She purchased a second home next door to her original dwelling in 1997. After demolishing it, she now wants to sell the land — for 40 percent below what she paid.

“There’s a debate going on within the city as to what to do with those vacant homes,” said Shima. “Some suggest we do nothing, returning the land back to nature. Others argue that we should find ways to revitalize some of the neighborhood.”

The lack of a secondary housing market has helped contribute to the rising number of vacant homes, Fujitsu Research’s Yoneyama said. Transactions of previously owned homes account for 14 percent of the total in Japan, according to the land ministry. That compares with 90 percent in the U.S., 86 percent in the U.K. and 64 percent in France.

“Japan needs to head in the direction of expanding the secondary housing market and reducing the number of newly built homes,” said Yoneyama. “What’s contradicting that is more and more new homes are now being built to capture the demand ahead of the government’s plan to raise taxes.”

Japanese houses also have shorter lifespans than those in the West — just 30 years on average, partly due to the poor quality of the housing constructed prior to the 1980s, according to estimates by Yoneyama based on data from the land ministry. In the U.S., the average is 55 years, and 77 years in the U.K., according to the land ministry.

Yuta Ishikura, 29, a father of three, who has lived in Inariyato for eight years, is considering moving to Yokohama.

“My wife and I are both working, so we need someone to look after our kids,” said Ishikura, in jeans and a T-shirt by California surfwear designer Shawn Stussy. “Yokohama offers after-school programs for kids, which is just what we need.”

The government faces a challenging task in creating more efficient urbanized areas while at the same time stemming the rise of vacant homes, Yoneyama of Fujitsu said.

“It’s becoming more of an urgent issue, and it is important to come up with measures to resolve it because the time is running short,” he said.

The percentage of vacant homes can be maintained at around 15 percent if the government starts introducing measures to encourage owners to tear down vacant homes, Sakakibara of Nomura said.

“It used to be common that parents find ways to increase the value of what they have and pass it down to their children,” he said. “But now, one can no longer expect much.”

  • OlivierAM71

    The Abenomic program is just another way to hide the truth about Japanese economy.
    Japan doesn’t need to build again and again, they need to change the system drastically!
    since 2011, already, one knows that “The national average rate of empty houses is 12.43%, meaning that there is approximately 1 empty house in every 8 houses” (Statistics-Japan, 2011-3-25, online)

    What is the point to build even more?

    • Mike Wyckoff

      The problem lies more in the mentality of the common Japanese consumer. You or I may not think twice about living in a slightly used house, driving a slightly used car, or getting a used table from a friend who’s leaving. But Japanese have a stigma for anything 2nd hand. They want new new new, that’s where the problem starts. And if we don’t change this belief that used I dirty, broken and old, we will continue to see an increase in this kind of thing.

  • Stephen Kent

    Yes it does highlight a hole in Abenomics, in that it has no real long term vision and seeks only to revive the economic conditions of the “bubble period” of the 1980′s.

    Simply building more homes for a declining population in an effort to stimulate the economy is a fairly crude idea. In my opinion someone needs to introduce the government to the words “urban renewal”, and any building of new homes on a large scale needs to be combined with demolishing the poor quality, energy wasting housing that went up in the 80′s and before.

    It is encouraging to read that the government are considering changing the laws and allowing taller buildings to be constructed (laws which, as I understand it, were put in place to ensure that land values remained as high as possible), as Japan has the technology and experience to build taller apartment blocks in an economically viable way and it could afford people more space to live in if the developers don’t get too greedy and try to cram as many people as is humanly possible into the smallest space. If they did build upwards in a planned fashion rather than building random concrete boxes wherever there are a few square metres of land that haven’t been concreted over, the land from the demolished old houses could be used to widen roads and provide some actual pavements for people to walk on (from what I have seen I *think* the Setagaya government is doing this, although it isn’t progressing very rapidly). This would not only make the environment more pleasant to live in but safer as well. The lack of space in which people can walk safely in residential neighbourhoods in Tokyo is something I can’t understand, and I’ve lost count of the number of times I have seen a frail old person walking along the road separated by only a foot or so from a passing bus or cement mixer. The same goes for children; one fall and they could easily end up under a moving vehicle.

    I think the people in charge just have to face reality. With a declining population the real estate market is never going to be what it used to be (barring an unlikely u-turn on immigration policy), but if they are wise about it they could actually decrease the number of housing units nationwide while providing more living space in cities and improving the living environment through construction. Unfortunately though I just don’t think they have the foresight or the imagination to deviate from the only path they know; keep pouring the concrete.

    • Digger

      The J-mafia runs a lot of the concrete business, hence Japan is covered in concrete.

      • Stephen Kent

        I’d heard that too. I just wish whoever was pouring it would do a more creative job!

  • zer0_0zor0

    There is a deep and somewhat disturbing connection between the construction industry and the LDP.

    • EQ

      I think that’s because the LDP has been in charge of the government for the greatest part of the last 65 years, including the immediate post World-War II years. The LDP had to oversee the reconstruction of Japan. Since both the political system and the construction industry have been run by the same families, it is inevitable that “special relationships” exist.

  • C321

    Nothing wrong with building new houses where they are needed, in most cases on brown field sites, but it would be a good idea to start returning some areas of unwanted housing back to nature, especially in areas like that highlighted in the article where for example access is poor or the area is too rural.

  • Yo Han

    Units in Tokyo cost an average of ¥56.4 million… There are many Japanese people who would like to buy a new home or a home for their children, but who has so much money? Nothing is written in this article how to save yen 56 million as an ordinary wage earner. Houses are not vacant because there are no buyers, houses are vacant because buyers to not have enough money to buy them.