Japan Times on future J housing markets, tax regimes, and why J houses are built so crappily


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Hi Blog. Here’s another excellent article from Philip Brasor of the Japan Times, regarding future Japan housing markets and taxation laws (and why houses in Japan aren’t built to last, or be resaleable). Should cause a twinge or two in the homeowners out there, myself included. Arudou Debito in a lovely, durable, but largely unappraisable house in Monbetsu.




The Japanese art of useless homes

The Japan Times: Sunday, Dec. 21, 2008

Last spring, when the effects of the American sub-prime loan disaster were being felt but the world economy was still relatively OK, there was an article in the Asahi Shimbun written by one of the paper’s financial reporters who recalled several years earlier a visit from a friend living in the United States.

The friend worked for a real-estate company and he told the writer just before he returned to America that he and his colleagues appreciated the Japanese people, because they were investing in U.S. mortgages as securities, and therefore helping poorer Americans borrow money at low rates so that they could buy better houses.

The writer mentioned this episode to point out the irony of the situation, since it was the failure of those securitized mortgages that led to the burst of the U.S. real-estate bubble and the current worldwide recession. However, there’s a deeper irony to the story: The Japanese people, whose housing is, for the most part, inferior in quality to that of American housing, were making it possible for Americans to purchase nice homes. But who is helping the Japanese buy nice homes?

The Japanese government would like everybody to think that they are. Last week, they announced new tax deductions for people who take out housing loans. It’s the biggest-ever tax cut for homeowners and encourages the construction of “long-life” structures that will supposedly improve the housing market. This latter idea, which is being called the “200-year housing plan,” has been around since May 2007, when it was formulated by a research panel set up by the ruling Liberal Democratic Party and headed by Yasuo Fukuda, who would become prime minister later that year.

At the time, Fukuda explained something everybody knew at least intuitively: Japanese homes were not made to last. After the war, the government promoted affordable housing so that everyone could own a home, with the result being “cheap, poor quality” structures that had to be replaced after 30 years. Since the houses themselves lost value quickly, people only invested in land, which invariably became over-valued. With the price of land so high, people couldn’t afford better quality homes, and cheap, poor quality structures became the norm.

What Fukuda didn’t mention is that the housing industry was addicted to this cycle, which is referred to as “scrap and build.” The average new house loses its value completely 15 years after it’s occupied. Consequently, Japanese people only want new houses and condominiums, because they believe that previously owned ones are junk. In order to change this mind-set, the Fukuda panel came up with the idea of promoting the construction of homes meant to last a long time, so that the structures themselves can be worthwhile investments.

But it wasn’t until these latest tax cuts were announced that the plan moved toward realization. According to current tax rules, a person who borrows money to buy a home can deduct up to ¥1.6 million of the loan from his or her taxes over a 10-year period after moving in. The new rules, which go into effect Jan. 1, increase the maximum tax deduction to ¥6 million over 10 years. And people who buy homes that qualify as long-life structures can deduct up to ¥1 million more from their taxes.

These figures are maximum amounts. The majority of home-buyers will receive lower tax cuts, because they are based on the balance of the loan, and every few years the ceiling for the maximum balance allowed for the deduction drops. Moreover, many homeowners pay relatively low taxes because of their income and other deductions, and regardless of the balance left on their loan, they can’t deduct more than they actually pay in income tax.

The cuts are being touted as a benefit to citizens, but just like the scrap-and-build strategy, they mainly benefit the housing industry, which is stuck with a huge inventory of unsold new homes that grows larger every day. And this new long-life housing rule also applies to condominiums, so don’t be surprised if, in the spring, the government announces the criteria for long-life housing and all those new, expensive and very vacant high-rise “mansions” looming over Tokyo’s waterfront qualify.

There’s less largess for people who already own homes, almost half of which were built before earthquake standards were introduced in the 1980s. The new tax cuts don’t apply to them. If they want to add energy-saving or “barrier-free” features, 10 percent of the construction costs can be deducted, but they don’t get deductions for home-improvement loans. In 1988, the government set “durable housing” standards to evaluate homes for resale, but almost no one takes advantage of them. According to the Asahi, right now only 543 houses and 1,063 condos on the market have been evaluated.

The long-life housing scheme will probably have a minimum effect, because only the rich will be able to afford such homes. The plan could hold promise over time if the yet-to-be-determined criteria optimize people’s desires. The reason homes in the West keep their value longer is that most were conceived as places to live, not consumer goods, which is what they represent in Japan. Designs for affordable housing in Japan are determined by the developer’s potential profit margins rather than the potential customer’s comfort: Just think of the boxy, impractical layouts of most condominiums, which allow developers to squeeze more units into a limited space.

In the long run, these policies will make little difference. According to the Population Research Center, if the current birthrate persists, 100 years from now there will be 45 million people in Japan, which is fewer persons than there are houses right now. It’s impossible to say whether the quality of those houses in 2108 will be good or bad, but they sure will be cheap.

The Japan Times: Sunday, Dec. 21, 2008

15 comments on “Japan Times on future J housing markets, tax regimes, and why J houses are built so crappily

  • I sympathize with what Philip Brasor is saying. But this is just par for course as far as government goes anywhere in the world now. Government seems to regard it as their responsibility to increase consumer spending, whether this be via laws as given above or via artificially low interest rates.

    Just for the record, people often mistakenly think that purchasing a house is an investment. While there might be some merit to the idea of the land itself as an investment, this is *never* the case with houses. Houses are a consumer durable, that is a long term consumable good. The only reason people often mistakenly think of them as an investment is because due to inflation house prices generally rise up to a point. In America house prices rose disproportional to inflation, which is at least part of the problem in the economy right now.

    I’d like to send some links on this, but I’m afraid if I do my comment will get eaten by the spam filter! 🙁

    — You needn’t worry. Since that mishap we had some years ago with your post eaten by the spam filter, I check all spam. I’ve only goofed a couple of times since, so please do send links. Sorry again for what happened back then. Debito

  • treblekickeresq says:

    The article stated “In 1988, the government set “durable housing” standards to evaluate homes for resale, but almost no one takes advantage of them.”

    Does anyone know anything about these standards and what they are called in Japanese?

  • Wow, what an eye opener. I heard many of the reasons as to why the Japanese often don’t want to purchase an older home, but I never knew in great micro detail all of the pitfalls in owning a home in Japan. My wife and I were contemplating with the idea of buying a home. Coming from the US, the West coast and growing up in a house and not really having to worry about people living above, below and on all sides of you, living in a house was always more appealing to me.

    What’s your experience purchasing a home in Japan? Should we attempt to go that route or just purchase a condo meaning, I can’t play my Cello at night (sigh) trying to get my permanent visa, so I really want to make a responsible choice.

    What do you think? By the way, “Happy New Year”

  • I don’t recommend buying a condo (manshon). I have heard so many horror stories (overpriced maintenance fees, rip off water charges, companies not taking responsibility for earthquake damage, etc).

    At the end of the day you don’t own much and the block will be demolished eventually.

    At least with a house you own the land.

    The best thing to do seems to be to buy an old house (10 years or so) so you just pay for the land. I have friends that got very good deals that way.


  • I have learnt so much about the state of housing new/old/buying/selling in Japan over the past 2 years. Frankly it is shocking to any westerner.

    I would gladly give anyone the benefit of my experiences of what to do. I wont make the decision for you, just provide you with the facts and you can make your own judgements.

    But the article above is correct, Japanese houses are crap, seriously crap. However, I am currently having a new house built, after the long tedious stop/starts and loosing lots of money on shysters and looking at all the permutations of which is best. I want to see and understand what I am getting for my money…i went to view a 2×4 (two by four) house being constructed. Absolute shite! I built better wooden models many years ago when doing my o’levels.

    If anyone would like some assistance/guidance, then Debito can pass on my email address to those who would like it.

    My background is engineering, so i know what I am looking at and how to critique construction/materials etc. Mostly it’s just common sense though…unlike the Japanese authority that approves the materials/construction etc.

  • “The reason homes in the West keep their value longer is that most were conceived as places to live, not consumer goods, which is what they represent in Japan.”

    This part is absolute nonsense. Is the author really trying to say that the reason for shoddy quality in Japan is consumer driven? Or is the author saying that Japanese don’t view their homes as “places to live”? I find it difficult to understand what the author is saying, but in any case, what he presents is not a “reason” for anthing, but a simple statement, that is unsupported and clearly wrong.

  • Sendaiben Says:
    January 2nd, 2009 at 1:10 pm

    I would gladly give anyone the benefit of my experiences of what to do. I wont make the decision for you, just provide you with the facts and you can make your own judgements.

    Yes, I would. I would really appreciate your advice and guidance.


  • Charles/Sendaiben

    If you ask Debito to pass on my email to you, i’ll gladly assist. Probably easier over a phone call too, or a meet up, if you live locally to me. Since there is so much to explain that a simple email will not give, plus too much to take in in one session, especially since it is an itterative process.

    It is a mess and full of con-men out there, but, you can get a decent house, by Japanse stadards (which is better than renting too), if you know where to go and ask the right questions…and if YOU know what you want too.

    — Glad to help. Please email me all three of you at debito@debito.org. I’m on the road at the moment… It’ll just make my job easier. Thanks.

  • My name seems to have gotten muddled into this discussion above. I just posted the comment knocking mashons, I don’t need engineering advice at the moment 😉


  • Mark in Yayoi says:

    Debito and John K, I’d love to participate in any potential real-estate-related meetup as I’ve just finished purchasing my condo in central Tokyo and have learned far more about the Japanese real estate industry than I ever thought I would need to. Rest assured that the con men and shysters aren’t limited to builders!

    TJJ, I can only imagine that the author said “consumer” when he mwant to say “consumable” — that is, houses here are something to be consumed; used up; disposable items that have a limited useful life, like automobiles or other household goods. The idea of a home lasting far beyond the death of its purchaser has never taken hold here, sadly, and the government and construction industry is not about to stop milking the public any time soon.

  • Sendaiben, Yes I realised after i posted, sorry about that.

    Charles, I’ve given Debito my email address, so just contact him and i’ll gladly pass on any advice i can give to assist you.

    Mark, friends have said i should write a book about my experiences..well, i wouldn’t go that far, but the general public are seriously kept in the dark and donot or feel they cannot, ask simple questions and expect a reply!

  • Mark,

    I also bought a condo a few years ago. A condo might not be for everyone, but if you know what you’re doing it can fit your goals quite nicely. For me, the loan repayments are equivalent or slightly cheaper than what I would pay monthly in rent for an equivalent place, and I can rent it out when I decide to move. Different stroke for different folks, I think, and there are no absolutes in the real estate game except for good planning and watch your back.

  • I agree that houses are built like consumer goods and are perceived to have a best used by date of about 30 years attached to them. Can you imagine if this weren’t the case? With the practice of offspring taking over the family home upon the death/retirement of the parents, a well-built home would simply be passed from generation to generation with little need for construction beyond routine maintenance and perhaps some interior work. The contruction business would shrivel if a home were to be built to last 100 years or so. With the perceived (actual?) need to rebuild every 30 years, the building trades ensure future work for themselves and, I believe, encourages builders to continue to do cheap (sometimes shoddy) work. There seems to be very little market for used homes (at least out here in the provinces) and many cannot easily be resold. This can provide a boon for people such as the NJ community who are likely used to renting to be able to rent entire home at rates competitive with apartment dwelling.

  • I can second Sendaiben’s advice on buying a 10 year old house. At that time, most houses are still in a good condition, but have no value (on the Japanese market).

  • What is clear that the economic incentives in Japan are against sustainable housing:

    Developers of mansions and prefab homes are not interested in longevity and operating cost for owners. They grab a piece of land, split it into four mini plots, and built some plastic house. People will buy it after visiting the mansion gallery and maybe finally the house once.

    You can find many faults in the design house design in japan:

    1. Single glass windows facilitate huge energy leakage both in summer and winter
    2. Large Windows facing north make above worse, s no sun light can warm the house in Winter
    3. Concrete foundations are not insulated. In many western countries, insulation layer needs to be at least on the outside of the foundation, going down about 1m. This exposes the large concrete slabs that act as a heat/cold reservoir to the cold air temperature/surface soil temperature in winter, and prevents cooling in summer
    4. Overpowered extractor fans, suck in too much cold/hot outside air.
    5. Insulation is often not truly airtight, and to thin, facilitating poor energy performance
    6. Lack of coupled solutions for heating and cooling. There may be an eco-cute heat pump, but this is only for hot water. Floor heating could be electric panels (too hot), and there is no linkup with solar water heater, as in other countries.
    7. Chemical materials are used for insulation, outside siding and interior covering. These so called “modern” materials have a long lifetime, but on the other hand they also have high embedded energy, and cause problems with the disposal later on. Even if this problem is postponed by 60 or 100 years, it will still be somebodies problem!

    Clearly, government must impose rules to prevent new building without the above consideration. They could give detail rules, about the components, or just introduce an energy efficiency test after the building is complete (then its up to architects to ensure the building would pass).

    Incentives such as subsidies can be used to retrofit buildings. But in that case the energy efficiency test should be mandated.


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