Laissez-Faire in Tokyo Land Use

by on August 4, 2016 at 7:25 am in Economics, Law, Uncategorized | Permalink

Tokyo, Japan’s capital city, has a growing population of over 13 million people but house prices have hardly increased in twenty years. Why? Tokyo has a laissez-faire approach to land use that allows lots of building subject to only a few general regulations set nationally. Robin Harding at the FT has a very important piece on the Tokyo system:

tokyoHere is a startling fact: in 2014 there were 142,417 housing starts in the city of Tokyo (population 13.3m, no empty land), more than the 83,657 housing permits issued in the state of California (population 38.7m), or the 137,010 houses started in the entire country of England (population 54.3m).

Tokyo’s steady construction is linked to a still more startling fact. In contrast to the enormous house price booms that have distorted western cities — setting young against old, redistributing wealth to the already wealthy, and denying others the chance to move to where the good jobs are — the cost of property in Japan’s capital has hardly budged.

This is not the result of a falling population. Japan has experienced the same “return to the city” wave as other nations.

How is this possible? First Japan has a history of strong property rights in land:

Subject to the zoning rules, the rights of landowners are strong. In fact, Japan’s constitution declares that “the right to own or to hold property is inviolable”. A private developer cannot make you sell land; a local government cannot stop you using it. If you want to build a mock-Gothic castle faced in pink seashells, that is your business.

But this alone cannot explain everything because there was a huge property price-boom in Japan circa 1986 to 1991. In fact, it was in dealing with the collapse of that boom that Japan cleaned up its system, reducing regulation and speeding the permit approval process.

tokyo-japan

…in the 1990s, the government relaxed development rules, culminating in the Urban Renaissance Law of 2002, which made it easier to rezone land. Office sites were repurposed for new housing. “To help the economy recover from the bubble, the country eased regulation on urban development,” says Ichikawa. “If it hadn’t been for the bubble, Tokyo would be in the same situation as London or San Francisco.”

Hallways and public areas were excluded from the calculated size of apartment buildings, letting them grow much higher within existing zoning, while a proposal now under debate would allow owners to rebuild bigger if they knock down blocks built to old earthquake standards.

Rising housing prices are not an inevitable consequence of growth and fixed land supply–high and rising housing prices are the result of policy choices to restrict land development.

The policy choices were made–they can be unmade.

1 Alan August 4, 2016 at 7:41 am

How much of that chart’s difference in housing cost increase can be explained by Japan’s twenty years of prolonged recession and meager growth?

2 John Thacker August 4, 2016 at 7:57 am

Little, considering that Tokyo itself has continued to boom (both in population and in GDP) during that twenty year period, as the impact of population and GDP stagnation has mostly been felt in the countryside and people have moved from the 田舎 to Tokyo. London, for example, saw massive increases even during a period of UK recession and meager growth, as people continued to seek to move to London.

3 Gullible White Cattle August 4, 2016 at 10:18 pm

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4 (((whoa))) August 23, 2016 at 1:41 pm

I guess you guys don’t moderate these?

5 Daniel in VA August 4, 2016 at 8:04 am

Yet the figures given above show a faster pace of construction in Tokyo. Why aren’t the places with booming prices building more? It’s obviously the zoning laws.

6 mulp August 4, 2016 at 12:11 pm

No it isn’t.

It’s a feature of the conservative anti-tax tax code:

“Proposition 13 has always had its critics. Lately, however, the criticism has been more widespread. Even some policy analysts who generally favor limited taxes and less spending have complained of an “inherent flaw” in Proposition 13.
Because Proposition 13 uses acquisition value (usually the purchase price) as a basis of taxation, it is possible for owners of identical side-by-side properties to have significantly different tax bills. In short, the system generally favors those who have owned their property longer.

“To understand why Proposition 13 is fair, one must understand how it works. Proposition 13 curbs property taxes by restricting the maximum rate (1%) and, more important, by limiting increases in assessed valuation (2% annually). With the latter provision, it is easy to see how a home’s current value can greatly exceed it’s taxable value over a span of just a few years.

“The substantial difference between a property’s actual value and its taxable value disappears when the property changes hands. When this occurs, county assessors reassess the property at full market value. Thus, recent purchasers derive no immediate benefit from the limitation on annual increases in taxable value.”

Sellers of property in California get screwed if they are not leaving California for good. Prop 13 is just like rent controls. And given property taxes are actually rents, prop 13 IS rent control.

Every economist knows rent control leads to increasingly inefficient allocation of resources and inhibits property development.

Residential property turns over on the death of the owner in most cases, but corporations can be structured to never die. Long ago, corporations owning real estate were restructured by selling off the business to a separate business corporation leaving the original owners of the land having one asset only, the real estate, which lives in perpetuity, with a parent shell company buying and selling businesses and being traded as an sale of enterprise. Thus commercial property is under assessed by estimates of as much as a trillion dollars, and commercial property is taxed at far lower rates than residential property based on fair market value.

If you own an apartment building as commercial property that’s 50 years old, tearing it down and buying the building next door and tearing it down and then building a much larger high rise apartment building will require significantly higher rents because property taxes alone might be 5-10 times as much per apartment as you currently pay per apartment. Property assessed and taxed at $500,000 becomes assessed at $25,000,000.

By not developing, but instead remodeling to make it more attractive without changing assessed value, you make the property more attractive than a new high rise, so the rent can be higher, compounded by the scarcity of apartments to rent.

Note, rebuilding in California to meet earthquake codes is punished while in Japan it’s favored. Rebuild to meet earthquake codes and your real effective property tax rate – rent – will increase by a factor that might exceed 10. In Japan, rebuilding for earthquake standards is tax neutral – the tax rent rate is constant.

7 adam August 4, 2016 at 12:52 pm

Even if this made any sense (which it doesn’t), there’s no prop 13 in NYC, DC, Sydney, Seattle, London or other cities where real estate values have been exploding over the last 30 odd years. It’s a CA unique policy. The common element is highly restrictive land use policies.

8 will August 5, 2016 at 4:39 am

It does make sense, although appears exaggerated. And it may help to explain why the problem is particularly acute in SF. However, you are right that it absolutely fails to explain what is happening in many rapidly growing cities in the West.

9 John Thacker August 5, 2016 at 7:55 am

I haven’t noticed that Democratic party super majority getting rid of Prop 13. I certainly agree that Prop 13 creates this kind of incentive, but surely you agree that rent control makes it worse, by also removing the incentives for current tenants to support building, just as Prop 13 reduces the incentives of current owners.

Glad you agree that California should be more like Texas, where property tax is the foundation of the tax structure.

10 Brian August 4, 2016 at 5:33 pm

Ta actually understand how Japanese zoning works, this article from Urban Kchoze is much better than the FT.

http://urbankchoze.blogspot.com/2014/04/japanese-zoning.html

11 rayward August 4, 2016 at 7:44 am

The bursting of the real estate bubble in Japan was so traumatic that the Japanese haven’t recovered from the experience. Indeed, at its peak, real estate prices in Tokyo were 350 times more expensive than comparable land in Manhattan. 350 times! By 2004, residential real estate in Tokyo was only worth of 10% of its late 1980s peak, while the most expensive land in Tokyo’s Ginza business district had fallen back to just 1% of its 1989 level in the same year. The destruction in “value” when the bubble burst was comparable to the physical destruction from the bombings of Hiroshima and Nagasaki, and not soon to be forgotten.

12 JWatts August 4, 2016 at 9:03 am

“The bursting of the real estate bubble in Japan was so traumatic that the Japanese haven’t recovered from the experience. ”

The record pace of building seems to belie that statement.

13 rayward August 4, 2016 at 9:57 am

“[T]he cost of property in Japan’s capital has hardly budged.”

14 Daniel in VA August 4, 2016 at 10:02 am

A rising cost of property is not real economic progress.

15 mulp August 4, 2016 at 12:18 pm

Cost of existing property does not change, only the price.

Conservatives love to argue that paying $50 for a Trump tie means it cost $50 when the workers got paid $1, $25 went to Trump, and the rest to people involved in marketing, sales, distribution.

But by that logic, why not pay Obama $5 billion per year for Obama’s America based on CEO pay being highest when most people believe the management is failing. That’s just the cost of hiring bad management in a free market.

16 The Other Jim August 4, 2016 at 12:34 pm

@mulp, because this is just priceless.

>But by that logic….

By this, you mean “the logic that absolutely no one is using, but I still hear it in my head, so like every other voice I hear in my head, I’m just going to assume it is real.”

17 Daniel in VA August 4, 2016 at 1:29 pm

You know mulp, if anything high prices for housing are similar to your complaint about the tie. The tie is priced at $50 in spite of costing $1 to make because of restrictions on new entrants imposed by society. I think most people in the US would agree that monopolizing a trademark, as Trump does with the tie, is legitimate. I and many others are trying to suggest that restricting the supply of housing, which is a basic human need, or at least restricting it as severely as is done now, doesn’t have that legitimacy.

18 Anon7 August 4, 2016 at 8:26 pm

+1. Should we also hope for more expensive energy costs as a sign of economic progress?

19 benjamin August 16, 2016 at 9:57 am

No, but rising aggregate rental values are the best sign of economic progress we have. Things only go wrong when these values are capitalised into rental incomes and selling prices.

20 Matt P August 6, 2016 at 2:07 am

The bubble burst is an important factor in why Tokyo prices are sane.
Yes, Japan’s relaxed planning laws have helped but I think skepticism around property as an investment class, in the wake of the burst bubble, is more influential. You just don’t see anywhere near the same level of residential property investment / speculation in Japan that you see in most western countries.

In some western countries, like Australia and New Zealand (where I live), there hasn’t ever been a true property crash, and a lot of people (wrongly) do not believe it can happen. Nothing like a crash where average values fall circa 30-40% to make a whole generation or two very cautious about property speculation.

21 dearieme August 4, 2016 at 7:50 am

Yeah, let’s unleash a tsunami of reform. Though perhaps phrased more diplomatically.

22 derek August 4, 2016 at 2:36 pm

Considering the very deeply entrenched interests involved in keeping the system as is, a tsunami would maybe be a good idea.

Aren’t most state capitals on waterways? Maybe something could be arranged.

23 John Thacker August 4, 2016 at 7:59 am

The policy choices were made–they can be unmade.

Unfortunately, it’s harder to unmake the choices than to make them. Reversing prices artificially born by zoning means rendering a lot of people who bought recently underwater. Much better to be Texas or North Carolina, or other states which never had tough zoning, than states that imposed them. That’s much tougher than avoiding windfalls.

More likely and promising is a sort of situation like Seattle, where price growth is moderated by supply to the point where it’s still quite expensive (and policy choices not entirely “unmade”) but avoiding the worst excesses of the Bay Area.

24 JWatts August 4, 2016 at 9:06 am

“Unfortunately, it’s harder to unmake the choices than to make them. Reversing prices artificially born by zoning means rendering a lot of people who bought recently underwater.”

Yes, that is a significant factor. But in the long run, California will suffer from continued housing shortages. The state has already become heavily bifurcated with an extremely rich elite, but the highest poverty rate in the nation.

25 anon August 4, 2016 at 12:14 pm

Not really true, though if you are poor, warm states are better. What does a winter of heating cost?

https://en.m.wikipedia.org/wiki/List_of_U.S._states_by_poverty_rate

26 JWatts August 4, 2016 at 2:06 pm

Census Bureau: California still has highest U.S. poverty rate

California continues to have – by far – the nation’s highest level of poverty under an alternative method devised by the Census Bureau that takes into account both broader measures of income and the cost of living.

Nearly a quarter of the state’s 38 million residents (8.9 million) live in poverty, a new Census Bureau report says, a level virtually unchanged since the agency first began reporting on the method’s effects.”

http://www.sacbee.com/news/politics-government/capitol-alert/article2916749.html

27 Cooper August 4, 2016 at 2:43 pm

The official poverty rate doesn’t account for price differences between states.

The federal poverty limit is $20,090 for a family of three.

In West Virginia, this family could afford a two bedroom apartment. They’d be homeless in Los Angeles.

28 JWatts August 4, 2016 at 2:50 pm

“The official poverty rate doesn’t account for price differences between states.”

Actually, it the official poverty rate does take that into account now. That’s one of the reasons that the US Census now lists California as having the worst Poverty Rate in the country.

“California’s Official Poverty Rate Down Slightly, Remains Above Rest of U.S. Last week, the U.S. Census Bureau released updated poverty statistics for states indicating that 16.4 percent of Californians—more than 6 million people—were poor in 2014. This poverty rate is down slightly from the 2013 rate of 16.8 percent, but remains higher than in the rest of the U.S. ”

http://www.lao.ca.gov/LAOEconTax/Article/Detail/136

29 John Thacker August 5, 2016 at 7:58 am

Actually, it the official poverty rate does take that into account now. That’s one of the reasons that the US Census now lists California as having the worst Poverty Rate in the country.

No, you’re sort of both right. The measure that lists California as the worst is the alternative “Supplemental” poverty measure. I agree that it’s more accurate, as it takes cost of living into account. The original “official” one does not, and that’s the one that’s cited in the Wikipedia article and elsewhere.

I certainly agree with you about the problems with bifurcation.

30 mulp August 4, 2016 at 1:58 pm

In California, fixing real estate requires repealing prop 13 which is exactly rent control which will hike taxes on the people who have refused to move in response to changes in the market because they profit most from creating housing scarcity. The greater the scarcity, the higher the prices and taxes other people pay for housing making the costs of services to you much cheaper.

Residential real estate changes hands every generation so the next generation pays welfare to the older generations.

But corporations live forever, so residential taxpayers provide welfare to corporations that do not expand and build new much higher tax rate factories, etc. Buying a holding company that bought an old farm or orchard in the 60s with tax rates set based on 1970s property assessments with fair market worth $25 million and building $25 million in office space on 1% of the land and thus paying $250,000 of property taxes at 1% instead of $10,000 gives your corporation super high status because just your real estate is worth a quarter billion in status.

Build a billion in rental or condos and the taxes soar to $10 million per year, and if those are all small apartments, say mass produced high quality very green units at $25,000 each, the market would be flooded with 40,000 rental units. The base rent would need to start with the $250 in property taxes plus some for infrastructure not turned over to government (roads, water, sewer, wetlands, parks, playgrounds), but that would be $25 per month. Being green utilities would be low as well as maintenance. Build a police substation, and you turn security over to taxpayers. Build schools and turn those over to raxpayers.

But how much could you charge in rent? Charge $500 a month and fill it up with people getting housing vouchers or other low wage workers.

Figure 25,000 kids to educate for $10 million plus $10 million from the State income tax, and it’s bankrupt from the start. The only way it works is for the other 100,000 property taxpayers to pay to educate all the poor kids.

Am I being absurd to model housing as an improvement on typical 50s housing with families of 3-4 in 500-600 square feet? Explain how such small living spaces from the past can be bad for those wanting to take America back to when it was great and 200 square feet per person was very generous?

31 John Thacker August 5, 2016 at 8:00 am

Yes, it probably does require repealing Prop 13 and rent control in order to achieve the political coalition in favor of reform (possibly even municipal aggregation), but you’ll still plunge anyone who bought recently underwater.

32 Geoff Olynyk August 4, 2016 at 8:47 pm

There’s actually a name for this: the transitional gains trap, originally theorized by Gordon Tullock in the 1970s.

http://blog.independent.org/2014/11/06/gordon-tullock-and-the-transitional-gains-trap/

A great example in my home province of Ontario is supply-management for dairy farmers. Very hard to ever get rid of it (in practice, if we do get rid of it, it’ll be by simply paying off all the dairy farmers, with a sum close to the discounted cash flow of all the future higher dairy prices that they would be foregoing).

33 John Thacker August 5, 2016 at 8:00 am

That is how the US finally got rid of tobacco farmer supports, buying out the tobacco farmers for their quotas.

34 Sam the Sham August 4, 2016 at 8:06 am

Aren’t they having a population bust? The relative decrease in demand everywhere would explain a lot too, if that’s the case.

35 Thomas August 4, 2016 at 2:01 pm

800,000 housing starts vs 130,000 housing starts. Is london less desirable? Is there a half million surplus of unsold residences built in Tokyo? ‘Decreased demand’ explains nothing.

36 Brian August 4, 2016 at 5:43 pm

Tokyo’s population is steadily increasing. So is Osaka’s, Fukuoka’s, and Nagoya’s.

Only the countryside in Japan has a shrinking population. The world’s best urban development policy is enough to attract growth even with falling population and zero immigration.

37 Axa August 4, 2016 at 8:12 am

The FT article is quite idealistic, that concept of shared and fair city ugliness. However, other people attributes house price deflation to “oversupply”. http://www.hkimr.org/uploads/conference_detail/465/con_paper_0_559_kawaguchi.pdf

What could have caused house oversupply? As Alex mentioned, people moving to cities balance the falling population. Thus, other two possible drivers are left: a) building to recent earthquake resistant building code, b) new homes are more comfortable homes. The facility (build permits & property rights) of building quake-resistant homes with central heating has made old property less desirable causing a persistent (20+ years) oversupply.

Of course this is great for renters and new buyers. The problem is how do you get approved the regulation that will cause oversupply for long time? I know almost nothing about Japan, but perhaps the idea was sold as “let’s build quake-resistant” homes and deflation in home prices was the unintended consequence.

38 Joe Torben August 4, 2016 at 8:17 am

The zoning laws are there to keep the riff-raff out. It’s sort of silly to pretend that they serve any other purpose.

How are the Tokyo zoning restrictions keeping the unwanted out? Not at all, it seems. So why would the good people of San Fransisco be interested?

39 Psmith August 4, 2016 at 8:51 am

Japan enforces its border security well enough (and has a sufficiently high human capital native population) that it need not rely on zoning.

40 dearieme August 4, 2016 at 10:05 am

Racist!

(I mean that you are implying an undeniable but unfashionable truth.)

41 MikeP August 4, 2016 at 9:43 am

SF may have kept new home-owning riff-raff away, but have you walked the streets of that town recently? Holy sh*t.

42 Brett August 4, 2016 at 10:04 am

The secret is that zoning laws are done at a much higher level than the city government, and I think the type of zoning that cities can have is set nationally. That makes it much harder for locals to block projects on private property.

43 Millian August 4, 2016 at 8:18 am

The Japanese also build and rebuild their dwellings all the time, way more often than in London or San Francisco.

44 JWatts August 4, 2016 at 9:08 am

That’s a good point. I would be interested in seeing the housing square footage per capita over time. Is the trend negative in SF or London? Is it stable in Tokyo?

45 Lord Action August 4, 2016 at 9:45 am

I came here to mention that. It’s a very different real estate market. Used real estate is usually not in good shape and there’s an expectation it will be rebuilt by the new owner.

46 charlie August 4, 2016 at 10:17 am

And of course one of the goals of zoning is to preserve housing stock — giving a bonus for older ones so it doesn’t get torn down.

47 Lord Action August 4, 2016 at 10:52 am

Agreed. It’s also a way of assuring that new entrants to the neighborhood are culturally similar to the current residents. It serves a lot of purposes.

48 Glenn Mercer August 4, 2016 at 12:37 pm

You beat me to it. I was going to mention the same. I am not sure how the Japanese aversion to buying “used” houses drives this lack of price appreciation, but it must have some impact. I wonder if it is possible to decompose a real estate price index into:

– cost of the building
– cost of the land

49 Taeyoung August 4, 2016 at 12:58 pm

I hear all the time about how the Japanese don’t like buying “used” houses, but if that’s true at all, it must be limited to detached housing, which are, I think, only about a third of the housing units in the central area. I bought a condo in Tokyo last year. There is a lot of “used” supply and it seems to sell pretty well — prices actually seem to be up substantially (at least in my building) since last year.

I can understand a preference for tearing down units built in the 60’s and 70’s, but from the 80’s on, the housing seems pretty solid, and once you hit the 90’s, even with larger buildings there are good anti-earthquake protections. You do see that in the pricing, though — you can be in the exact same neighbourhood, and one 500sqft unit can be something like twice the price per square foot of another, because one was built in 1980 and the other was built in 2005. Which is actually great for affordability.

Of course, I’m looking at multi-family housing. Detached housing might have been a lot shoddier all the way up to the present. But to be honest, I don’t really see the appeal of detached housing, especially in a place like Tokyo where even if you have a yard it’s probably going to be tiny.

50 Ethan August 4, 2016 at 8:31 am

As Millian noted, aren’t these numbers a bit misleading (as far as total housing supply) because houses are constantly knocked down and rebuilt? So all these building permits might not be increasing supply very much.

51 mulp August 4, 2016 at 2:29 pm

You mean like:

“Renting an apartment in Japan requires a lot of money up front. One typically has to pay a couple months deposit, plus key money (a unreturnable “gift” to the landlord). Landlords also require a guarantee who promises to pay the rent if a tenant defaults. Housing costs—determined by how much space you get for the money—are on average at least double that of the United States.

“Buying a home is often not a very good investment in Japan. Their value doesn’t go up; many houses are constructed to last only 15 or 20 years; and houses are difficult to sell. The government offers mortgages deductions and tax breaks on new houses that are not offered to second and third time owners. Only 11 percent of home sales are for pre-owned houses compared to 76 percent in the United States.”
http://factsanddetails.com/japan/cat19/sub121/item645.html

52 Thiago Ribeiro August 4, 2016 at 8:57 am

“Rio-2016: A Brand New World”
“Brazil: Our Day is Marching On”

53 Bill August 4, 2016 at 9:29 am

We were to Japan earlier this year. There is a practice of business executives having a house where they work–another part of Japan–and also an apartment or house in Tokyo, close to the main office. (Same thing works for businesses: an office elsewhere, and a token office with fewer people in Tokyo).

What you might be seeing with housing construction and real estate (at least in Tokyo, but certainly not in the rural areas) is people looking for places to store their cash (real estate) rather than in the bank, earning zero.

So, what you might be seeing is real estate as the bank account for zero interest banking. This is not as a result of laissez-faire real estate or loosened regulation, but the financial system.

And, by the way, have you ever seen what the lack of zoning means in Japan. Neighborhoods are a mess. It is really depressing, unless you are in a condo area.

54 Thiago Ribeiro August 4, 2016 at 9:47 am

What is the problem with Japanese neighborhoods? I’ve never been to Japan.

55 Bill August 4, 2016 at 10:31 am

Sort of look like flat roofed brown add on shacks with a car port. I would upload some pictures for you, but imagine that Tokyo was bombed during WWII and people built the cheapest they could following the war, with no zoning. You can have a car maintenance facility next to two houses, next to a Saki factory, next to a 7-11, next to three houses, etc. The house on the inside though is not bad.

56 Thiago Ribeiro August 4, 2016 at 10:50 am

Thanks. It is funny, the Japanese look like such control freaks, I would have suspected Tokyo would be like Brasília: a sector only to hotels, a sector restricted to embassies, a sector restricted to retail, a sector restricted to the military , a sector restricted to offices. It is a blessing the urban planning commissars didn’t create a “bakery sector” and forced half the population go to the other side of the city just to buy bread for the breakfast.

57 Daniel in VA August 4, 2016 at 11:02 am

No offense but that policy really does seem stupid (at least for the hotels, offices and especially retail).

58 Thiago Ribeiro August 4, 2016 at 12:12 pm

It seemed to make sense back then, Brasília seemed to be the future, at least SF movies made us to thimk human colonies in Mars would look like Brasília
It is hard to control what all people do all the time, so, as a urban planning history reseacher said, the sectors system allowed to simplify reality and make it fit in the plans. The territory is made to ressemble the map as much as possible. Residential sectors for living (with retail subsectors inside), two banks sectors, two sectors just for diplomatic missions (the American embassy and the Russian one are a five-mimute walk apart, they live together in perfect harmony side by side. Oh, Lord, why don’t we?), streets just for drugstores, two sectors for semi-detached houses, two sectors for malls and entertainment, two sectors for hotels in opposite parts of the city, a civic/administrative/bureaucratic sector, a sector for print shops, a sector for building material shops, four sectors for hospitals and clinics, two sectors for radio and tv stations. As the old song goes,
“Doesn’t matter who you are
You’re there and there you are
Everything Is in its place
Authority must be maintained
And then we know exactly where we are
Let them feel that they’re important to the cause”

59 Sal August 13, 2016 at 9:29 am

There is zoning, but it differs by area. For instance, in the major Japanese city I live in there are two tiers of residential zones as well as commercial and industrial zoning. In practice, even without the zoning, it makes little sense to build a factory in an area with higher land value (commercial or residential) because it isn’t cost-effective for the space.

The bigger problem are old apartment buildings which are not being properly managed by the tenants who live there and lacking the money to maintain or rebuild. The post-war apartments are hitting that age now and will rapidly increase over the next few decades.

60 collin August 4, 2016 at 9:46 am

This is a good story but can you also show a separate chart of the price increase from 1975 – 1995. It is nice to know housing urban crunch can be turned around but we do need to understand how much the Boom of Japan made prices out of whack. (Also the population increase of Tokyo still appears modest here.)

Again, we need to focus on local politics as well.

61 Bill August 4, 2016 at 10:34 am

Japanese agricultural policy is changing, which is leading to children going to large urban areas and leaving the elderly back in the country. The change in ag policy is interesting, and is prompted by TTP.

62 Ray Lopez August 4, 2016 at 9:52 am

AlexT distorts the record on Japan methinks. I believe Japan has very strict zoning laws for farmland (as does Greece). That’s to say: if the land is not zoned as a “city”, you cannot build on it. Simply put: you cannot do a “Reston, VA, USA” planned community on a rice farm, in the middle of nowhere. Same in Greece (that’s why Greek farmland sells for about $10k USD an acre). In Tokyo, as AlexT says, it’s a different story. But I’m not sure if Kyoto (historic city) is the same as Tokyo.

より多くを説明することができる「限界革命」のいずれかの日本の読者はありますか?

63 Cliff August 4, 2016 at 12:35 pm

Reston is now an inner suburb. Farmland in the U.S. also sells for about $10k/acre

64 Sal August 13, 2016 at 9:34 am

Kyoto is slightly more stringent now, but any drive around the city (especially south of the station or down the Keihan line) will show a lot of clearly not zoned stock.

(そして、日本語が読めるマージナルレボリューション読者もいますよ。「限界革命」と呼ばないけど…)

65 Anthoma August 4, 2016 at 10:23 am

Tokyo also has strict laws against auto transportation. Most city dwellers use public transit.

66 Sal August 13, 2016 at 9:37 am

Companies pay for the public transit of employees usually. many companies will give an allowance for drivers, but it is far smaller and doesn’t really cover the cost of gas, tolls, and parking (at least in the middle of the cities, industrial areas in Yokohama often have parking lots for employees).

67 anon August 4, 2016 at 12:19 pm

My California beach city has a building height limit. A good way to keep down density. The community supports it, and would like “affordable housing” elsewhere.

I would prefer that US codes were forced to “safety only” and let the “affordable housing” take care of itself, but that is one of my more libertarian and minority views.

68 Thiago Ribeiro August 4, 2016 at 12:57 pm

” California beach city has a building height limit. A good way to keep down density. The community supports it, and would like “affordable housing” elsewhere.”
Same thing here. Loud protests once in a while to remember politicians our community votes. Cars, specially, seem to be the nemesis to be avoided (like the movie Nemesis, that is also to be avoided) if the protest signs and yelling are antyrhing to go by. I can’t complain really, in my home town, I would never have been able to afford a nice house, a yard and trees (there are only many-store buildings as far as the eye can see). It is not just self-interest. Communities need rules to protect quality of life. The place where anyone can build whatever he wants is the fabela, I doubt it is the good model libertarians seem to think it is.

69 Daniel in VA August 4, 2016 at 1:21 pm

There’s a lot of space between the favela where one can build whatever one wants (and the lack of ownership there incentivizes the occupiers to minimize cost of construction) and the place many American cities are in where residents, particularly the more active owners of property, can block construction because they don’t like density, leading to a shortage.

70 Thiago Ribeiro August 4, 2016 at 2:03 pm

“There’s a lot of space between the favela (…) and the place many American cities are”. Of course, there is, but this space is placed almost totally on a slippery slope. No one has incentives to get it right and no one has incentives to enforce regulations after it becomes too difficult to do so. If we allow three-store buildings, the world will not end and, and tomorrow there will be four-store buildings, the world will not end, and then there will be five-store buildings and so on and on. Brasília is a good example. The embassies sector and the banks sector cause no problems, but the residential sectors are rife with non-authorized houses and the city population is four times what it was planned to be. In fact, this is exactly how the favelas started. Better be safe than sorry. No one will die if the authorities curb a little the cities’ growth. Average productivity is what matters. When you can’t grow bigger, you learn to grow better.

71 Daniel in VA August 4, 2016 at 2:28 pm

Many slippery slopes are just places where the space of possible policies is a continuum. They aren’t really avoidable. The choice that has been made in many US cities is to almost entirely ban growth, moving to one end of the slope.
And look at the choice you are presenting: you are saying that any growth or relaxation of restrictions will lead to more, so don’t do any. “You learn to grow better” won’t happen under this regime. It amounts to saying “we can’t have nice things” such nice things to include the basics of civilization. Without any new housing to accommodate growing populations in the US and Brazil, and the fraction of the population in the US and Brazil in need of better housing, things will get worse.

72 Thiago Ribeiro August 4, 2016 at 3:31 pm

“Without any new housing to accommodate growing populations in the US and Brazil, and the fraction of the population in the US and Brazil in need of better housing, things will get worse.” The US and Brazil are both big, blessed with empty sace and many underdeveloped cities. Brazil has got cities bigger than Portugal. Also the populations are leveling and getting older. Instead of debasing good neighborhoods, the best is to allow demand and supply to interact. There are many smaller cities that would profit from immigration from the biggest cities.

73 Anoni August 4, 2016 at 12:55 pm

I think the Japanese can do a lot of things through culture that we have to do though rules. How many japanese actually build a neo-gothic castle that their neighbours hate. I bet it is very very few. I bet there are all kinds of informal cultural understandings about when a plant goes to next to houses and japanese understand these rules by and large.

Culture is a cheaper and more flexible way to get things done for lots of these local issues. for instance, my neighborhood bans garage apartments because some will abuse it. We would not have to do that in a strong shared culture.

Japan, as I understand it, essentially bans muslims and islam but its more of a shared cultural understanding than a set of rules with lots of enforcement costs.

Tylers insistence on destroying first world culture through immigration means everything will have to get done through rules and fought through courts, which will destroy growth.

74 Taeyoung August 4, 2016 at 1:23 pm

“Japan, as I understand it, essentially bans muslims and islam but its more of a shared cultural understanding than a set of rules with lots of enforcement costs.”

No, not really. They don’t ban Muslims or Islam at all, and as far as I can recall aren’t even all that hostile to Islam. But they aren’t going to bend over backwards to adapt their country to the customs of foreigners who chose to come. That might be the kind of “shared cultural understanding” that tends to force out foreigners (including Muslims), but I think it’s reduceable to comparatively concrete things like that fact that Japanese cuisine (like Chinese and Korean cuisine) is full of pork, which would make it rather difficult for an observant Muslim to live comfortably in Japan.

And I guess as a counter-terrorism measure, the police have apparently put basically every mosque, every Halal restaurant, and every Islamic organisation in the country under surveillance, and maintain dossiers on everyone who frequents them. Maybe that’s what you’re thinking of? This wasn’t something they made public (e.g. to pressure Muslims to leave), but back in 2010 or so, there was a leak of some private information about some of the individuals they’d tracked as part of this exercise. A bunch of activists sued to get the government to stop comprehensive surveillance, on the pretext that it was an infringement of their human rights, but lost pretty comprehensively. The people whose personal data was inadvertently leaked did get some compensation, though. Privacy rights are taken very seriously in Japan.

75 Bob August 4, 2016 at 1:47 pm

They have tight immigration restrictions which for all practical purposes ban mass Muslim immigration. They also have blanket surveillance of Muslims:

http://www.independent.co.uk/news/world/asia/muslims-japan-government-surveillance-top-court-green-lit-islamaphobia-a7109761.html

76 Viking August 4, 2016 at 4:17 pm

A requirement that the immigrant knows a little of the language would prohibit the majority of Moslem immigration, and an even bigger majority of the troublesome ones. Except when the target country speaks French or English.

77 Thiago Ribeiro August 4, 2016 at 2:10 pm

OK, but should I believe that the USA police departments and federal intelligence departments are not spying on the Muslims? Not because they are Muslims, of course, but, you know, just coincidentally. https://www.aclu.org/factsheet-nypd-muslim-surveillance-program

78 JWatts August 4, 2016 at 2:54 pm

“Not because they are Muslims, of course, but, you know, just coincidentally.”

I don’t think the NY PD is just keeping a close eye on Muslims ‘coincidentally’. You might recall there were a couple of unfortunate events involving Muslims in New York City a few years back.

http://assets.nydailynews.com/polopoly_fs/1.2349245.1441397014!/img/httpImage/image.jpg_gen/derivatives/article_750/attacks-collapse.jpg

79 Thiago Ribeiro August 4, 2016 at 3:11 pm

“I don’t think the NY PD is just keeping a close eye on Muslims ‘coincidentally’.”
This is my story and I am sticking to it. Evidently, it would be terrible to spy on people because of their race, national background or religion, but the police and intelligence agencies have to keep their eyes open because there are all kinds of troublemakers, gangsters, terrorists, swindlers, spies etc. around. The price of liberty is eternal vigilance, you know. Brazil has little to no problem with Muslims, but if the intelligence is not spying on them, they are the only ones not being spied on.

80 Taeyoung August 4, 2016 at 4:03 pm

I don’t think the surveillance of mosques and Muslims that is being conducted in the US is anything like as comprehensive as it is in Japan. There are so few Muslims in Japan that there is probably covert surveillance on literally every foreign Muslim and domestic convert, and the courts have upheld this. In the US, our courts and political pressures have rendered that kind of blanket surveillance of all members of a particular religion untenable, and in any event there are simply so many Muslims in the US already that it is simply not possible to carry out surveillance on everyone.

81 Thiago Ribeiro August 4, 2016 at 5:03 pm

Fair enough, but unless another Snowden attacks, we probably will never know how much American authorities were able to do and get away with.

82 derek August 4, 2016 at 2:51 pm

When British Columbia initiated the fiscal reforms in 1983 that spread to most provinces and the Federal government, one of the laws passed was to nullify municipal plans. It didn’t last.

83 Steve Sailer August 4, 2016 at 8:00 pm

I was under the impression from reading The Economist during the 1980s that Tokyo had lots of open land due to government financial support for rice farming on a hobbyist scale. The Economist was always complaining back then about how Tokyo was full of tiny farms that should be used for housing.

84 Michael Smitka August 20, 2016 at 12:19 am

Alex, I’m an economist who reads Japanese and has worked on real estate issues in the (distant) past. First, look at a time series, not an average between arbitrary end points. Second, what is the data source? The most widely reported prices are for land, based on tax valuations. Not the same as housing, for which data are scarce. I wonder if the labels are correctly translated – I looked at a number of Japanese-language statistics portals, and saw nothing that would let me produce your chart.

Third, and perhaps most important, what is your model? If it’s an open city model, then you must incorporate demographics, because prices in the center are a function of prices at the edge – and those prices have been falling, monotonic since 1991. Indeed, rural Japan is plagued by abandoned real estate.

Fourth, there are lots and lots of restrictions on what you can do that are not zoning, but do matter. Tokyo in general, and central Tokyo in particular, is built on leased land. Tenants have rights, too, and not just the building owner. So redeveloping a piece of land can be at best challenging and at worst impossible, particularly if construction standards such as setbacks have tightened. Are such properties averaged in? This is really an area where you have to dig into the data. Oh, and the starting point for Minato-ku is a very low population, so it’s a percentage against a small base. The ink spilled on that increase is disproportionate to the absolute numbers. But data aside, metro Tokyo is very much an “open” city and so you can’t ignore what is going on at the fringe. No model or wrong model = silly statements.

All that said, average floor space is larger, the average residence is better built, and the cost of living in Tokyo is not bad. The collapse of manufacturing and the movement of warehousing to the outskirts has left land that can be redeveloped, and there is also new landfill along the harbor and trainyards in Minato-ku that were sold off.

But the distortions!! I last lived in metro Tokyo on sabbatical in 2006-7. I was near an express stop train station, but in front of my apartment there was a peanut field, turned into a parking lot by the end of the year, all tax ploys that robbed the area of green. A bit further out were areas of mainly farms, inaccessible because there was no bus, and no parking or other ready access at the train station end of a potential commute. The university where I was based had very limited parking for faculty and staff [and none for students], so commuting by car was out. Lots of other examples. Lawsuits over sunshine rights – zoning, no, but NIMBY for even little things. No buried utility lines, so it’s hard to take a picture anywhere without wires in the photo. Lots of aging ferro-concrete buildings from the 1960s that are deteriorating, too expensive to tear down. Cheap housing, but some is effectively abandoned, even a low rent is too much. And the roads!! Because eminent domain is hard to exercise, connector roads mapped out 60 years ago have yet to be completed. That too affects real estate prices, without ready movement local gradients relative to trains stations and so on are steep. Anyway, one number tells little, especially if it’s unclear what it measures. A story built on one data point reveals something of the author, but nothing of Japan or of economics.

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