Japan’s new law on minpaku (private lodging) businesses took effect Friday, but stringent rules may dampen the entry of homeowners into the market, despite hopes that it could help counter a shortage of accommodation amid a growing number of foreign tourists.

The new law enables private homes to be offered as accommodation for tourists only if the owners submit the necessary paperwork to prefectural governments or designated municipalities. Registrations can also be made online.

Previously, offering accommodation in private homes was allowed in Japan only under the Hotel Business Law, except for private lodging services in specially deregulated zones. The law requires property owners to obtain accommodation licenses.

The new law is designed to cope with a sharp increase in foreign visitors and a consequent shortage of hotel rooms, a trend expected to continue in the run-up to the 2020 Tokyo Olympics and Paralympics.

“Through setting steady rules, we aim to expand the healthy minpaku business while making sure of the safety and security of users,” Nobuhiko Hohokabe, an official at the Japan Tourism Agency, said at a news conference promoting traditional Japanese houses.

Minpaku businesses are expected to better meet the needs of foreign visitors hoping to experience Japanese culture up close, said Hohokabe, who is in charge of minpaku services, adding this would lead to more repeated visits to Japan by overseas travelers.

The number of foreign visitors to Japan surged 19.3 percent in 2017 from the previous year, hitting a record high of over 28 million, according to the JTA. The government has set a target of 40 million foreign visitors by 2020.

Offering accommodation in private homes had been allowed in Japan, but under the Hotel Business Law a license was necessary. The new law requires the maintenance of a guest registry, hygienic conditions and a prompt response to any complaints from neighbors.

In line with the enforcement of the new law, companies are also trying to exploit new opportunities in expectation that the minpaku market will expand.

Expedia Inc.’s vacation rental service subsidiary HomeAway and Rakuten Lifull Stay Inc. will jointly renovate and certify old Japanese-style houses known as kominka for vacation rentals. Rakuten Lifull Stay is a joint venture of Japanese e-commerce giant Rakuten Inc. and real estate information service company Lifull Co.

Seven-Eleven Japan Co., the country’s biggest convenience store chain, has teamed up with travel agency JTB Corp. to allow foreign tourists to receive and return room keys at its convenience stores.

However, restrictions set under the new law, such as offering accommodation in private homes for a maximum of 180 days a year, could throw cold water on the entry of property owners and dilute the attraction of the private lodging business.

“Nonprofessional renters, who were doing minpaku in the way of homestays, have to give up rentals,” said Takuya Ichikawa, senior researcher of the Daiwa Institute of Research. “The minpaku market is expected to shrink in the short term.”

Ichikawa also said the new rules may prompt more professional business operators to enter the market, contrary to the original ideal of a “sharing economy” in which nonprofessionals can earn money on the side by advertising their homes on the internet.

Depending on the local situation, municipalities can also set their own restrictions, such as banning the minpaku business in certain areas or limiting rentals to a shorter time period. If the minpaku business does not take off as expected, it could lead to higher hotel prices overall, experts say.

Amid concerns about potential violations of noise and garbage disposal rules, Tokyo’s Meguro Ward banned private lodging businesses on weekdays.

As of June 1, more than one third of 150 municipalities in Japan had set their own restrictions, such as on the area or duration of rental services, according to a tally by the Japan Tourism Agency and Kyodo News.

Prefectural governments and major cities began accepting registrations from property owners on March 15 in advance of the enforcement of the new law.

Tourism minister Keiichi Ishii recently said there were an estimated 3,000 registrations nationwide as of June 8. In the last count on May 11, there were just 724 properties registered.

Industry sources estimate more than 60,000 properties have been offered as accommodation. The number is expected to fall to 20 to 30 percent of the total even if lodging houses permitted under the Hotel Business Law are included, they said.

Without obtaining licenses under the Hotel Business Law, operating in specially deregulated zones or registering under the new minpaku law, offering accommodation is illegal.

As a result, U.S. online home-rental service Airbnb Inc., which has built up a large share of the minpaku market since debuting in Japan in 2013, has cracked down on thousands of previously listed lodgings in the country that had not registered under the new law.

It will set aside a total of ¥1.1 billion ($9.9 million) to compensate affected travelers.

“Given the adjustment period that we are in, we are doing everything in our power to take care of guests and hosts. And there are a number of guests who have been impacted by the cancellations,” said Nathan Blecharczyk, co-founder and chief strategy officer of Airbnb. “Our hope is that we don’t have to cancel more reservations.”

Rayce Francis and Mariah Miller, a couple from California both age 20 and on a two-week trip to Japan, said they preferred staying in a private apartment partly because it is cheaper than a hotel room. They booked a lodging near Shinjuku through Airbnb.

Airbnb’s delisting of its lodgings may cause some foreign tourists, especially young people, to think twice about using minpaku in Japan, Miller said. “If I really come here again, it would be kind of a shame as there are fewer options,” she said.

Meanwhile, hotels and renters with accommodation licenses welcomed the new regulations, expecting that their number of customers may increase as stricter rules are imposed on those who want to rent out their homes to tourists.

Liang Yingxi, who has lived in Japan for more than 20 years and established Chika Capital LLC, a company renting a total of 30 houses across the country, including in such popular tourist destinations as Kyoto and Hokkaido, said his company is not subject to the 180-day limit and other restrictions.

“The new law sounds like good news for us,” Liang said, adding that it intends to protect the hotel industry, which has opposed private homes being used as accommodation for foreign tourists.

Daiwa’s Ichikawa said fostering a healthy sharing economy is the government’s goal over the medium and long term. The rules such as the 180-day cap may be eased somewhat if they do not meet demand for rising numbers of foreign travelers, he said.

“For the further development of healthy minpaku, how to improve the effective use of vacant rooms will be a major future task,” Ichikawa said.

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