NRI Papers
No.137 December 1 , 2008
  Obstacles to Affluence: Thoughts on Japanese Housing  
Richard KOO and Masaya SASAKI
   Unlike people living in Western nations, residents of Japan have not benefited from an increase in the value of the nation's housing stock. Houses here last only about 30 years on average, effectively making them a durable consumer good, whereas in Western countries a house is a capital good that will retain its value almost in perpetuity as long as it is properly maintained. The market value of Japanese houses falls even faster than they can be depreciated for tax purposes; after 15 years the typical house is worth nothing.
   A number of factors have hindered the development of Japan's housing stock. One is the building regulations that have limited the amount of floor space that can be built on a lot of a given size and forced homebuyers to spend money on the land instead of the building. Another is that quantity was more valued than quality during the nation's period of high economic growth, leading to the supply of relatively small homes with a short lifetime.
   In Western countries, stable home prices have allowed home ownership to function as a savings plan. In Japan, meanwhile, owners generally lose money when they sell their rapidly depreciating homes and must also set aside funds for rebuilding. This is one reason why cash and deposits have come to account for such a large portion of Japan's personal financial assets.
    New investment in Japan will decline as the birthrate declines and the population ages. The nation urgently needs a paradigm shift in its approach to housing that will enable the housing stock to grow in value. To this end, the government needs to deregulate land and housing to keep land prices in check, promote the construction of more durable houses and certify existing houses capable of meeting criteria for durability and other qualities.
Contents
I Housing-based Wealth Eludes Japanese Households
II Homes Become Durable Consumer Goods
III Why the Value of Japan's Housing Stock Remains Low
IV The Economic Impact of a House's Life Span
V Transforming Japanese Houses into Capital Goods

PDF GO to PDF

Copyright(c) Nomura Research Institute, Ltd. All rights reserved.