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
From the outside 
