National housing policy is set for change with the reformist Koizumi Cabinet having launched a political battle to abolish or privatize all unprofitable semigovernmental corporations.

Two housing-related public corporations that suck up hundreds of billions of yen every year from the national coffers are on the hit list: the Government Housing Loan Corp. and Urban Development Corp.

Housing Loan Corp. makes up about 40 percent of Japan's 180 trillion yen housing loan market, while Urban Development Corp. is dubbed the "world's largest landlord," with 748,500 rental properties on its books.

Prime Minister Junichiro Koizumi has ordered the infrastructure ministry to hammer out a detailed plan to either abolish or privatize the two firms. The ministry is expected to submit its draft plans by Thursday.

But industry observers lament that Koizumi lacks a vision for housing policy and has not come up with any alternative plans to nurture private firms or to give public support to low-income households aspiring to own property.

Both public firms were established in the 1950s, when Japan was struggling to recover from World War II.

Japan promoted housing construction in the postwar years by relying on trillions of yen from the "zaito" government investment-and-loan scheme.

For fiscal 2000, Urban Development Corp., which provides rental apartment housing and builds urban infrastructure such as sewerage systems, posted income of 1.237 trillion yen, but this was set off against 1.635 trillion yen paid in debt -- mainly from the zaito program.

The public firm has barely made ends meet despite strong government support. In the same year, it received 1.18 trillion yen from the zaito, 177 billion yen in government subsidies and a capital injection of 36.75 billion yen in the form of a special government subsidy.

Housing Loan Corp. has received similar treatment from the government. It has used public housing loans to shore up support amid a sluggish economy, and to help home buyers.

Government subsidies -- 518.5 billion yen for fiscal 2000 alone -- allowed the public firm to offer each borrower fixed, low-interest loans for up to 35 years.

It currently offers a 2.6 percent interest rate for the first 10 years, and 4 percent for up to 25 years.

But many commercial banks apply fixed rates of more than 3 percent over periods up to 10 years, with the rate floated for the remaining payment period.

"No private financial institutions can offer such low interest loans over such a long period of time," said Sayuri Kawamura, senior economist at the private think tank Japan Research Institute Ltd.

Kohki Ishii, a Lower House member from the Democratic Party of Japan, said all economic resources held by the two corporations should be released to the private sector to help reinvigorate the ailing economy.

The original role of Urban Development Corp. was to provide low-income city dwellers with cheap rental housing.

But using funds from the government loan scheme, the developer expanded its business scope to upmarket condominiums, office buildings and even large-scale urban development, Ishii said.

"As a result, debts have been snowballing. The market economy hasn't built up (in the housing industry)," he said. "It's socialism."

Officials at Urban Development Corp. argued that it has already withdrawn from the condominium market, where it used to compete with private companies.

It will also shift its focus to urban rental housing with large floor space, which it claims is difficult for private firms to provide, the officials said.

The public housing loan system seems more controversial.

The system worked well in the past, and many households and real estate and related firms are still relying on benefits from the state-backed corporations.

Housing Loan Corp. currently loans to 5.5 million households -- which means one in eight households is indebted to the semigovernmental firm.

"About 85 percent of our 4,000 customers a year use public housing loans," said Rei Umaoka, business promotion head at Tokyo Livable Inc., a major real estate firm.

Demand for condominiums would sharply drop should the public loans be abolished, he said.

He admitted that inefficient public firms need to be reformed, but called the idea of abolishing the public loan system "absurd."

He also pointed out that customers preferred long-term fixed-loan rates because a sudden rise in interest rates could affect their future plans.

For commercial lenders to offer long-term fixed loans, securitization of housing loans is indispensable, industry experts said.

Securitization spreads investment risks over a number of security holders and public institutions through issuance of mortgage-backed securities.

But unlike the United States, the securitization market is still in its infancy in Japan, and commercial lenders could not take over the role of public housing loan firms, the experts said.

Naruo Mukaiyama, deputy manager at the planning section of Mitsui Fudosan Co. argued that the Koizumi government should first propose a set of alternative measures, such as tax breaks aimed at low-income households, should it ever abolish the public loan corporation.

"Without such proposals, we can't judge if (the abolishment) would be good or bad," he said.