Japan’s Vacant Houses: Visions of Detroit

Unlike Detroit, which will run out of cash next month, Japan prints its own money, so bankruptcy in the Detroit sense is not in the cards. But they do have two things in common: depopulation and a ballooning stock of abandoned houses. For Japan, it’s an issue that even the most prodigious money-printing binge cannot resolve.

These decrepit buildings dot neighborhoods in surprising places. There was one just down the street from our apartment building near the South Korean embassy in Azabu-Juban, Tokyo. Not a cheap neighborhood. It was a diminutive wooden building, turned black with age and soot. In places there was rusted sheet-metal siding. The roof was made of rust-perforated corrugated iron. The tiny garden had morphed into a thicket of weeds.

I saw numerous such places. Sometimes they were incongruously wedged between groomed buildings. Other times, they were in rougher areas. Sometimes they were larger buildings. Further out, a neighborhood might be dotted with these pockmarks. Japan isn’t the only place with blight. But the sheer quantity of abandoned houses in Japan is stunning – and has been getting worse at an accelerating clip.

Now the government wants to do something about it. But unlike the stock market, which can be goosed by the intoxicating vapors of money-printing promises, the real economy is tougher to deal with, and housing stock, when the population is declining and shifting, is even tougher.

The Ministry of Internal Affairs and Communications surveys vacant houses every five years, splitting them into two categories: houses that could be rented, sold, or used as secondary houses; and abandoned houses. Over the fifteen years from 1993 to 2008, according to the most recent survey, total vacant houses ballooned by 72% to 7.57 million. They made up 13.1% of all houses nationwide, the highest proportion ever. Vacant but still usable houses increased by 63% to 4.88 million. And abandoned houses jumped by 91% to 2.68 million.

It’s not just in small towns suffering from depopulation, as the young migrate to urban centers. Over the decade through 2008, the number of abandoned houses in Tokyo jumped 60% to 190,000; and in Osaka 70% to 180,000! That was in 2008, before the financial crisis slammed into the housing market. Since then, the abandoned-house phenomenon has gotten worse.

Many of these structures were cobbled together during the postwar decades into the 1970s, “one-generation buildings” designed to last 30 years. While land is considered valuable, much of that value has been wrung out of it over the last 20 years. And buildings are considered an expense; they become worthless over time and have to be torn down – another expense – to be replaced by an even greater expense.

During my first foray into Japan in 1996, I stayed in a rundown apartment in a four-story building from the 1960s, in a dreary area in Ekoda, Tokyo. In 2004, I went back to check on it. It was gone. A train line had been built under the main street. The entire area had been razed. New mid-rise buildings had sprouted up. The commercial center was around the spotless station. And there was a tiny gleaming Citroën dealership. Urban renewal, the hallmark of big Japanese cities. It never stops.

But it can’t keep up with the growing fiasco of abandoned houses. There are reasons. The structure of the Japanese family has changed, with kids moving away. They might have no interest in the house. Or heirs might not have the money to maintain it. Selling a property like that in a market with a declining population and with plenty of newer houses is tough. Municipalities want owners to tear down these houses, but often they can’t find the owners. And owners are reluctant to tear them down; to continue receiving the tax benefits, they’d have to build another house on the property. Expense after expense!

It has gotten so bad that the Land Ministry has changed its stance on unoccupied houses: before, it would only allow local governments to tear them down in areas of depopulation. As of this month, it will allow all municipalities to tear them down anywhere, but warned that they might get sued by the owner if they razed a house under administrative subrogation. And to motivate owners to tear down their house, the central government and municipalities will cover 80% of the costs!

The abandoned-house phenomenon illustrates how the real economy gnaws relentlessly on Japan. It has nothing to do with interest rates, liquidity, and the value of the yen: there simply aren’t enough people to fill any of the 7.57 million vacant homes. Next year, there will be even fewer people. And more vacant homes.

For foreigners, piling into this market is unappetizing: with Abenomics hell-bent on devaluing the yen, their investment is destined to lose value. So now the solution is to raze these houses across the nation, largely at the expense of a government that is already up to the nose in debt and can only stay afloat because the Bank of Japan has promised to print whatever it takes – that’s how far Japan has boxed itself into a corner.

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