Editorials

Mixed recovery in land prices

The 2017 land price data released by the government continues to highlight the gap between big metropolitan areas around Tokyo, Nagoya and Osaka and other regions of the country — and the polarization within the regional areas between major cities like Sapporo, Sendai, Hiroshima and Fukuoka, where the prices of both residential and commercial land plots are rising even faster than in the three metropolitan areas, and elsewhere.

The land prices, which reflect the concentration of people and business, and mirror the state of the local economy, testify to the slow progress in the government’s efforts to reverse the population exodus from rural to urban areas and achieve a more balanced growth of the economy across the country. The Abe administration needs to get more serious about putting its regional revitalization agenda into practice.

According to the Land, Infrastructure, Transport and Tourism Ministry, the national average of residential land prices as of Jan. 1 stopped falling for the first time in nine years — since before the 2008 Lehman Brothers shock — while commercial land prices gained 1.4 percent from a year ago for the second annual growth in a row.

The marginal 0.022 percent increase in residential land prices was attributed to the ongoing moderate recovery of the economy, as well as government measures to spur housing demand such as mortgage tax relief and ultra-low interest rates under the Bank of Japan’s aggressive monetary easing. The pickup was led by increases in the Tokyo, Nagoya and Osaka metropolitan areas plus the four major regional cities, whereas the land prices in parts of the country outside the three metropolitan areas fell 0.4 percent for the 25th year-on-year decline in a row.

Such a disparity in land prices roughly mirrors the gap in demographic trends. According to the Internal Affairs and Communications Ministry, the greater Tokyo area (including Kanagawa, Chiba and Saitama prefectures), Aichi and Osaka prefectures as well as Sapporo, Sendai, Hiroshima and Fukuoka all had greater inflows of people than outflows in 2016. Residential land prices were pushed up by rising housing demand generated by population increases.

The margin of decline in regional areas as a whole has been narrowing. The number of prefectures where residential land prices fell by 2 percent or more declined from five (Akita, Yamanashi, Wakayama, Tottori and Kagoshima) last year to two (Akita and Kagoshima). The decline in average commercial land prices in the regional areas also shrank to 0.1 percent, as the 6.9 percent surge in prices in the four cities of Sapporo, Sendai, Hiroshima and Fukuoka — which drew brisk investments because the cost of land remained affordable compared with the three metropolitan areas — led the pack.

However, the population exodus from the regional areas continue unabated. Of Japan’s 47 prefectures, only seven experienced net population inflows last year and all the other 40 suffered net outflows — as did more than 70 percent of the municipalities throughout the country. While residential land prices rose for the first time on a national average this year, the prices reportedly continued to fall in 35 prefectures. The four major regional cities — where residential land prices grew 2.8 percent, even faster than the 0.7 percent rise in the greater Tokyo area — attract more people and investments, but about 60 percent of locations in regional areas surveyed saw continued fall in land prices. Such a polarization is expected to continue, and a broad-based pickup in land prices across regions may be hard to anticipate.

With its regional revitalization agenda, the Abe administration has set a goal of balancing the population flow into and out of Tokyo and the three prefectures in its environs by 2020. That seems out of reach, with the greater Tokyo area still seeing a nearly 120,000 net population inflow in 2016. The administration’s initiatives to reverse the population flight — such as tax incentives for businesses to move their headquarters out of Tokyo or relocation of central government functions out of the capital — are making slow progress and, as the land price data suggests, having little impact on regional economies.

Commercial land prices, meanwhile, were pushed up by robust demand for the construction of shops and hotels catering to inbound tourists, whose number increased 22 percent from the previous year, setting yet another a new record of 24 million. Areas in Osaka and Kyoto popular among tourists occupied the top spots where land prices rose the sharpest. Even though the aggressive shopping spree by visitors from China may have subsided, inbound tourism demand will likely continue to hold the key to a sustained rise in commercial land prices.

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