Japanese housing

At face value the value of Japanese housing might appear a bit off topic for an Australian based banking and finance blog. I believe however that anyone interested in banking probably needs to understand the economics of the housing market in which the banking system operates. Housing affordability is also a recurring topic of debate in Australia without much evidence the problem is being resolved.

With that bit of context, I offer up a post that Noah Smith wrote in response to an essay written by the BBC’s outgoing Tokyo correspondent reflecting on his time in Japan. Noah’s over-riding argument is that Japan is not as stagnant as the BBC correspondent contends. He makes a number of counter arguments but the one that caught my attention is his assessment of the Japanese housing market.

Noah notes that the BBC correspondent opens his article by complaining that Japanese houses tend to depreciate instead of appreciate:

In Japan, houses are like cars.

As soon as you move in, your new home is worth less than what you paid for it and after you’ve finished paying off your mortgage in 40 years, it is worth almost nothing.

It bewildered me when I first moved here as a correspondent for the BBC – 10 years on, as I prepared to leave, it was still the same.

Japan was the future, but it’s stuck in the past

Noah argues that what appears like a problem to someone who is accustomed to expect that house prices should always go up is in fact a strength of the Japanese system …

Weirdly, this is presented as a chronic problem — something Japan should have fixed long ago, but hasn’t. But in reality, depreciating real estate is one of Japan’s biggest strengths. Because Japanese people don’t use their houses as their nest eggs, as they do in much of the West, there is not nearly as much NIMBYism in Japan — people don’t fight tooth and nail to prevent any local development that they worry might reduce their property values, because their property values are going to zero anyway.

As a result, Japanese cities like Tokyo have managed to build enough housing to make housing costs fall, even as people continued to stream from the countryside into the city.

Increased supply is often talked about as a big part of the solution to the housing affordability problem in Australia. Depreciating real estate is clearly not something that the Australian public is going to embrace any time soon (at least not until the political power of renters outweighs home owners) but the Japanese model is interesting none the less if only to see how a society functions under this model.

Tony – From the Outside

Stablecoins – what are they good for

Not a fan of crypto but this Odd Lots podcast offers a concise update on the use case for stablecoins.

Also concludes with an interesting summary of three things that crypto tends to mis about conventional finance, banking and money

omny.fm/shows/odd-lots/the-booming-crypto-use-case-thats-happening-right

Tony – From the Outside

Moneyness: Monetagium

JP Koning is a regular source of interesting insights into the history of money. Here he delves into the history of currency debasement as a form of taxation and how rulers figured out better ways to extract the revenue they wanted. The analogy with the Mafia is a nice touch.

— Read on jpkoning.blogspot.com/2024/05/monetagium.html

Tony – From the Outside

The beauty of float

One of the things about banks is the ability to get interest free funding. This great post by Marc Rubinstein explores the ways in which five non-bank companies also make money off interest free funding.

Fun fact, Marc notes that Starbucks gets to take funds in abandoned accounts to profit while banks are not allowed to do this. Inactive bank accounts get transferred to a government body where customers can make a claim if they come looking. This can be a relatively big number.

Worth reading

Tony – From the Outside

What do bad decision making organisations have in common?

I think it is human instinct to interpret why organisations and people make bad decisions through a moral lens (e.g. they are bad people) but I am more interested in the question why organisations run by ordinary people seem to end up with often substandard outcomes. My current interaction with one of my financial service providers comes to mind.

This post by Marc Rubinstein and Dan Davies offers some insights that have prompted me to order Dan’s new book

What do bad decision-making organizations have in common?  Quite a few things, but one of the clearest signs is something you might call an “accountability sink”.

Tony – From the Outside

New money, old money – Bank Underground

Always on the look out for things we can learn from history. In that spirit here is an interesting post on a Bank of England blog that explores what lessons the switch from coins to paper money might offer for the expansion of digital currencies.

They identify five lessons. The one that resonates with me is that the adoption of new forms of money can depend on the extent of shortages in the conventional forms …

“Possible lessons for the adoption of digital currencies

Can we learn anything from the switch from coin to paper in the 1690s that might be relevant to any adoption of digital currencies today? One lesson is that shortages of money are a powerful force in stimulating new forms of money to emerge. In the 1690s the extreme shortage of silver created a compelling reason for merchants to adopt new paper currency.  Arguably, this is a force driving some new forms of digital money to emerge – conventional forms of money being incompatible, or lacking the functionality to use, in some digital settings, creating an effective shortage.”

Tony – From the Outside

Residential mortgage risk weights

I have posted a few times challenging the often repeated assertion that advanced banks are subject to materially lower risk weights than their competitors operating under the standardised approach (see here for example).

I have not seen the argument asserted for some time but APRA has chosen to publish a short note repeating their conclusion that the difference is nowhere near as big as claimed.

Here is a link to the APRA note but the short version is

“APRA estimates that the average pricing differential for housing lending due to differences in IRB and standardised capital requirements is 5 basis points.4 Taking into account the IRRBB capital charge and higher operational costs for IRB banks would further reduce this pricing differential.”

Tony – From the Outside

Thirteen Questions about Money – by JW Mason

One for the banking and finance tragics I suspect but I thought this is a pretty good list. In the author’s own words

I have my own opinions about what are more and less convincing answers to these questions. But my goal is not to convince you, or my students, of the answers. My goal is to convince you that these are real questions.

— Read on jwmason.substack.com/p/thirteen-questions-about-money

Tony – From the outside

Sometimes banks suck because we want them to suck.

… exploring why dealing with banks can be hard. US focus but I think it probably rings true across most banking systems. It will be interesting to see if advances in machine intelligence help address any of these long standing issues.

www.bitsaboutmoney.com/archive/seeing-like-a-bank/

Tony – From the Outside