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Vacant Housing Rate Forecast and Effects of Vacant Homes Special Measures Act

Vacant Housing Rates of Tokyo and Japan in 20 Years

Hidetaka Yoneyama  
Senior Research Fellow

Tuesday, June 30

1. Growing Number of Vacant Homes

In 2013, Japan had 8.2 million vacant homes, or a vacant housing rate of 13.5%, the country’s highest rate to date (Fig. 1).

Fig 1: Numbers of residences, households, and vacant housing rate

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Source: Ministry of Internal Affairs and Communications, “Housing and Land Survey Statistics” (aggregate data)

Vacant homes are divided into four categories: “for sale”, “for rent”, “second home (villa)”, and “other”. Particularly troublesome are residences in the “other” category, which is defined as vacant properties which owners neglect without looking for buyers or tenants. One common example of how such vacant homes come to be is when someone allows his or her parents’ house to sit unused after the parents pass away. The majority of “other” vacant homes are of wooden construction, and as long as regular maintenance is performed, these houses don’t need a resident. If neglected for a long time, however, there is an increased danger for these wooden houses to become subject to collapse, squatters, fire, or illegal disposal of rubbish, any of which could have adverse effects on the surrounding neighborhood. The percentage of “other” vacant homes has risen from 35% of all vacant homes in 2008 to 39% in 2013.

The “other” vacant housing rate (“other” vacant homes / all housing) has also increased from 4.7% to 5.3% over the same five-year span. Looking at prefectural rates, those regions suffering from depopulation are ranked highly, e.g., Kagoshima at 11% and Kochi at 10.6%. In contrast, urban areas have low rates of “other” vacant homes, e.g., Tokyo’s rate of 2.1% is the lowest in Japan (Fig. 2).

Fig 2: “Other” vacant housing rates by prefecture (2013)

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Source: Ministry of Internal Affairs and Communications, “2013 Housing and Land Survey Statistics” (aggregate data)

“Other” vacant housing rates are highly correlated with aging rates: prefectures with aging populations have larger numbers of “other” vacant homes (Fig 3). As the aging rates of individual prefectures and the whole country increase, so too will the rate of “other” vacant homes rise.

Fig 3: Population aging rates and vacant housing rates

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Source: Ministry of Internal Affairs and Communications, “Housing and Land Survey Statistics” (aggregate data), “Population Estimates”
Note: Aging rates are from 2012, “other” vacant housing rates from 2013

Urban areas have low rates of “other” vacant homes, but that doesn’t necessarily mean fewer problems. While urban rates may be low, the overall numbers of vacant homes are quite high, as exemplified by Osaka and Tokyo, which sit at #1 and #2 for most “other” vacant homes. Furthermore, because urban areas have closely spaced buildings and residences, a single problematic vacant home can adversely impact a large number of surrounding properties.

Looking at the survey results of five years ago, Tokyo remains unchanged in 2013 with a vacant housing rate of 11.1%. A breakdown of the categories reveals that whereas the national rate of “other” vacant homes rose, Tokyo’s rate fell from 25.1% to 18.7%, while its rate of “for rent” vacant homes rose from 65.5% to 73.2%.

Urban areas have a large supply of apartments and rooms for lease or rent, and recent inheritance measures have increased that supply further. Yet, as new apartments fill up to capacity, older apartments are left without tenants. As long as an owner is advertising for tenants, an apartment will receive regular upkeep and there will be no problems. Once the apartment gets older and the owner stops listing it, however, the “for rent” apartment is re-categorized as an “other” vacant room. Without regular upkeep, such apartments can become just as problematic for neighboring apartments and properties as a vacant home. “For rent” vacant homes and apartments have the potential to cause large problems in urban areas in the future.

Among the reasons for the growing reserve of problematic vacant homes are the following: 1) Population decline; 2) Increase of nuclear families, with children not inheriting familial homes from parents; 3) Inability to sell or rent out properties due to lack of marketability for quality or location reasons; and 4) Unsold/unrented properties which should be demolished but are left standing because fixed asset taxes on empty lots are six times more expensive.

2. Japan’s Idiosyncratic Housing Market

In most countries, the vacant housing rate fluctuates according to the state of the economy, but Japan’s rate has climbed consistently since WWII. The main cause of this is because, after the war, Japan’s housing market became saturated with disposably built houses. As Japan’s population boomed, new residences needed to be produced in large numbers, but this led to the construction of lower quality structures with shorter lifespans. Furthermore, urban centers spread out to their limits, and many residences ended up being built in unfavorable locations.

This meant that after the war, urban areas expanded in a disorderly manner, and many of the residences built at that time were not suitable to be sold and reused. Now, as the population declines, no one wants to inherit or live in those houses which are of low quality or poorly located, and so they sit unused. Within Tokyo’s urban centers, some neighborhoods consist chiefly of wooden houses. These structures were in accordance with the building code at the time of building, but they are now illegal structures. Those that cannot be torn down and rebuilt on their current plots are left vacant and untended.

Japan’s case is quite an anomalous one. England has a vacant housing rate of 3-4%, and Germany’s rate is extremely low at around 1% (Figure 4). European cities have clearly delineated urban areas, outside of which residences may not be built. Houses are built to last within specified zones and passed from generation to generation or sold as a pre-owned home to new residents. While the US has similar housing customs, its vacant housing rate is relatively high at 8-10%, which is most likely connected to its plentiful land.

Fig 4: Vacant housing rates outside Japan 

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Source: Real Estate Transaction Promotion Center, “Overseas Survey Related to Real Estate Consulting”, 2013
Note: Vacant housing rate = (number of residences – number of households) / number of residences

Within the housing markets of Europe and the US, pre-owned homes make up around 70-90% of the market, while new homes comprise the remainder. By contrast, Japan’s market consists of only approximately 15% pre-owned homes, and a vast majority of new homes. Despite the growing number of vacant homes in Japan, approximately 800,000 new homes are constructed each year, with 990,000 being constructed in 2013 due to rush demand before the consumption tax hike. Japan’s housing market finds itself in an untenable position as vacant homes continue to multiply and new houses are built in large numbers.

3. Vacant Housing Rates in 20 Years

At the current pace, how high will vacant housing rates rise? I calculated the rates of Tokyo and all of Japan based on the following conditions (Figure 5). Housing demand, i.e., number of households, was based on National Institute of Population and Social Security Research (IPPS) estimates, according to which Japan’s number of households will peak in 2019, and Tokyo’s in 2025, after which the numbers will decline. While Japan’s population is already shrinking, the increase in one-person and small family households has resulted in the number of households continuing to increase, but this will not last much longer. On the supply side, Case 1 represents the status quo, i.e., it maintains an average rate of new residential groundbreakings and demolitions compared to recent years. Case 2 represents an incremental decrease in new groundbreakings, down to a final value of 50%, and a gradual increase in demolitions, up to 200%.

Fig 5: Vacant Housing Rates in 20 Years (Japan and Tokyo)

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Sources:
Ministry of Internal Affairs and Communication, “Housing and Land Survey”;
IPPS, “Estimate of Number of Households in Japan (National Estimate)”, Jan 2013;
IPPS, “Estimate of Number of Households in Japan (Prefectural Estimates)”, April 2014.

Notes:
1) Cases are assumed as follows:
a) Case 1: Number of new groundbreakings = recent average value
Demolitions = average of past 10 years (2003-2008 and 2008-2013)
b) Case 2: Groundbreakings = starting at recent average, reduced incrementally every 5 years to reach 50% of initial value by 2029-2033.
Demolitions = starting at average of past 10 years, increased incrementally every 5 years to reach 200% of initial value by 2029-33.

2) Recent average value of new groundbreakings defined as average of 2010-2012. The reason for selecting this 3-year period was to avoid the unique factors seen in the groundbreakings slump following the Lehman Brothers collapse in 2009 and the surge in 2013 before consumption tax was raised in Japan.

3) Demolition rate = (5 year total groundbreakings – 5 year net increase in residences)/5 year total groundbreakings.

4) Forecasts of household numbers based on IPPS data.

In Case 1, the national vacant housing rate will reach 28.5% in 2033. Meanwhile, whereas Tokyo’s rate was nearly equivalent to the national rate until 1998, rural regions saw a higher rate of population and household decline thereafter, causing the national rate to surpass that of Tokyo. In the future, however, the number of households in Tokyo will also begin to decrease, resulting in the prefecture nearly catching up to the national vacant housing rate at 28.4% in 2033. By contrast, in Case 2 the increase in vacant housing rates is reined in somewhat, but even so the national rate reaches 22.8% and Tokyo reaches 22.1% by 2033.

Even by halving the number of new residences constructed (with the difference to be accounted for by making use of pre-owned homes) and doubling the number of residences torn down, it will be nigh impossible to reduce vacant housing rates. Vacant homes will doubtless become a more severe issue in the future.

4. Drafting Special Measures and Tax Reform

To start with, vacant home countermeasures should include two aspects: expedient removal of dangerous structures and encouragement of the use of those residences which are still usable.

On the demolition side, progress has been made on the formulation of the Vacant Home Management Ordinance (401 municipalities had enacted it as of October 1, 2014), which allows for the local government to provide guidance, give notice, issue orders, and even execute demolition of problematic vacant homes. The formulation and enactment of this ordinance varies greatly by region, and it has been enacted by more than half the municipalities in only 5 prefectures: Akita (92.0%), Saga (80.0%), Yamagata (77.1%), Yamaguchi (68.4%), and Niigata (60.0%). Saitama (33.3%) also ranks in the top 10. These prefectures with high rates of enactment either have significant numbers of vacant homes due to population decline; or they have a high risk of vacant homes collapsing due to heavy snowfall; or they have a high building density in their urban centers.

Following adoption of the ordinance, a Vacant Homes Special Measure was established in November 2014 with the same content (partial enactment on February 26; full enactment on May 26). According to this measure, vacant homes which: (1) present clear danger due to possible collapse; (2) present clearly unhygienic conditions; (3) have clearly suffered in appearance due to lack of upkeep; or (4) if left in their current state will have adverse effects on the surrounding environment, will be considered “specified vacant homes”. Municipalities will have the authority to enter and inspect these structures (denial of entry to result in a fine) and enact measures similar to the above, such as provide guidance, give notice, issue orders (failure to comply to result in a fine), and even execute demolition. By the time the special measure is fully enacted, the Ministry of Land, Infrastructure, Transport and Tourism will have issued guidelines outlining how to determine whether a building is a specified vacant home or not, and municipalities will make their decisions based on those guidelines. Furthermore, the special measure allows for municipalities to draft their own vacant home countermeasure plans, with national funding for the survey, demolition, and reuse of vacant homes available for those regions which do so.

Additionally, the 2015 tax system reforms state that buildings which have been given notice will no longer be considered as excepted residential land, and owners will have to pay fixed asset taxes in full. The system by which building a house on a plot of land reduced taxes on that land had the effect of increasing available housing at a time when it was in short supply. Now that housing is too plentiful, it gives an incentive to leave a dangerous structure standing instead of demolishing it. This change to the tax system seeks to address this adverse effect.

5. Expected Effects of Special Measure

As a result of the enactment of the special measure and the reform of the tax system, owners of specified vacant homes will begin to feel more pressure. This pressure will most likely affect owners’ behavior such that they perform maintenance on buildings in order that they don’t become specified vacant homes; make use of them by renting them out; or sell them while they still can, considering the upkeep costs and future increased tax costs. Based on these changes in behavior, house builders and real estate companies have already begun providing maintenance and liquidation services, showing a vanguard effect of the special measure.

Even if an owner’s taxes are increased, however, if she is unable to pay and is further unable to cover even the demolition costs, some buildings will still be left to stand vacant and abandoned. In this case, the government will have to execute the demolition of the building, but it will be unable to bill the owner and it may have to sell off the land in order to recover the costs. Even if the municipal government is able to sell the land, however, if there was a lien on the property, part of that lien might be transferred to the government. If the government is unable to collect by selling the land, then the demolition will have been carried out using public funds. One of the disadvantages of municipalities actively undertaking execution of demolitions is that more owners, knowing that such measures will be taken, will simply sit idly by and wait for the government to take care of the demolition for them.

In advance of these abovementioned tax system reforms, some municipal governments have tried to address the fixed asset tax issue by still removing special tax exemptions but allowing a two-year extension in lieu of subsidizing demolition costs, thereby encouraging owners to take care of demolition of dangerous residential buildings on their own. Mitsuke city in Niigata prefecture and Tateyama city in Toyama prefecture have gone with two-year extensions, while Toyomae in Fukuoka has set a much longer ten-year extension period. This measure is not without its problems, however. It is often more advantageous for owners of only slightly rundown properties to leave their building to become dilapidated and then demolish them only after receiving the extension. The extension therefore has its pros and cons.

While the Vacant Homes Special Measure will likely be effective in increasing the number of demolitions of specified vacant homes, when owners do not deal with problem buildings themselves the issue of whether the city should execute all demolitions or subsidize self-demolition in some manner will doubtless arise in the future.

6. Government Support for Demolition Costs

The guidance, notices, and orders of the ordinances and special measure mentioned above, as well as the removal of special exemptions on fixed asset taxes for residential land, are all means of applying pressure to vacant home owners using the proverbial stick. Demolitions will not necessarily increase through the application of the stick above, however, and so municipal governments have provided various carrots to encourage owners to demolish.

The tax exemption and extension on tax increases mentioned above are one example of such incentives, but even simpler would be demolition cost subsidies. According to a survey by Mainichi Shimbun, 96 municipal governments had demolition subsidy systems in place by autumn 2014 (September 21, 2014, Mainichi Shimbun).

The municipality which has provided the most subsidies for demolitions is Kure, Hiroshima, with 262 subsidized demolitions for \70 million at the time of the survey (subsidies limited to 300k yen each). Because Kure is located in a sloped and hilly area, subsidies are used to encourage demolitions which would otherwise be difficult to undertake. Tokyo’s Adachi, Arakawa, and Kita wards are also providing subsidies (limited to 800-1000k yen). Whereas Kure provides smaller subsidies to more houses, Tokyo’s wards provide larger subsidies in order to quickly clear away houses in danger of collapsing, without resorting to full-on execution of demolitions.

There are also some unique subsidy systems. For example, Fussa city will subsidize demolition (up to 500k yen) only in cases where the house has been vacant for more than one year and the owner is willing to demolish it and build a family residence in its place. Fussa is suffering from an outflux of its young demographic and is trying to retain its population by combining demolitions with new residences.

There are also cases of vacant homes being demolished using public funds under the condition that the land and building are donated to the city. Nagasaki city provides such demolitions (41 as of 2013) as long as the community is allowed to decide how to use the land and agrees to maintain it. Because Nagasaki is a very hilly city and homes are concentrated on flat areas and hillsides, using a vacant home’s empty lot for a public project is very important for neighborhood improvement. The municipal government commits public funds for the sake of the community, not for the owner per se. Yamagata city and Namerikawa, Toyama also have systems for using public funds for demolition.

Some municipalities encourage vacant home demolition by subsidizing the teardown under the condition that the land be appropriated for public use for a set time period while also waiving fixed asset taxes on the land during that period. Bunkyo ward in Tokyo has torn down two houses under this system (subsidy limit 2 million yen). The oldest example of this type of system is Koshimae in Fukui, which has demolished 22 houses.

Some cities take matters in hand and proactively execute the demolition of dangerously rundown vacant homes when the owners cannot or will not. One example is Daisen in Akita prefecture, whose vacant homes are constantly in danger of collapsing due to heavy snowfall. The three cases of executed demolitions, however, incurred costs of 6.2 million yen, which have yet to be recovered. These executions have in essence become examples of publicly funded demolitions, but they were carried out because it was judged to be for the good of the public.

Here we have surveyed various forms of publicly funded demolition systems employed by cities to fit their own circumstances and needs. In the future, cities will most likely include various different methods and measures when they formulate their vacant home countermeasures plans.

Yet, there are moral hazards to using public funds in this way. If people are aware from the outset that they can receive such support, then they will never choose to bear the costs of demolition. The government must make its stance clear that owners must, in principle, carry out the demolition themselves, dependent on the needs of the area and the circumstances of the building in question. When the property is right on the threshold of becoming dangerous or the neighborhood is able to gain much value out of the plot of land, then the government will have the leeway to allot funds and remove specified vacant homes. Municipalities will have to bring their wisdom to bear in order to make this strategy work.

7. Promoting Use of Vacant Home Banks

Turning now to look at the vacant home-use side of the story, many rural cities have had vacant home banks for years. A vacant home bank is a system whereby the city government manages the matching of vacant home supply and demand.

In order for a vacant home bank to work, the first step is registering enough stock. While there are many examples of vacant home banks with support measures for new tenants, such as renovation and rent subsidies, there are few which provide incentives to vacant home owners. One such example is Takeda, Oita, which is trying to counter the lack of newly registered properties in its vacant home bank—due to owners not wanting to move furnishings—by providing 100k yen to the owner when a contract for sale or rent is signed. Oshika in Nagano has set up a system to subsidize (up to 100k yen) the transport or disposal of home furnishings of vacant homes which are registered in the vacant home bank and sold or rented out.

Collaboration with local realtors, NPOs, and regional partners is also essential to increasing the number of registered vacant homes. Furthermore, in order to increase the number of sales and leases of these properties, systems need to be put in place to provide lifestyle and work support and consulting, and to answer any questions about the building. Such systems should be established by the local administration and community working in tandem.

Another common option for using vacant homes is as a local community space. Tokyo’s Setagaya ward has a system for providing open access to vacant homes (rooms) or donating them for use by the community without compensation.

8. Improving Fluidity of Pre-owned Homes

Above, I have pointed out the need to increase demolitions of dangerous vacant homes in the short term and to make use of those buildings which are still usable in order to deal with Japan’s vacant home problem. This would only be treating the symptoms, however. In order to solve the more basic problem, Japan needs to change the structure of its housing market to be more like the West by building houses that last and using them for a long time.

Historically, the Japanese did not build their homes intending to eventually sell them and they did not properly maintain them, leading to buyers being very wary of pre-owned homes. Those who did maintain their houses well, meanwhile, were not rewarded by the pre-owned homes market, and so there was little incentive to do so. In recent years, Japan has finally begun keeping maintenance records and the pre-owned homes market is beginning to recognize and value that. A long-term, high quality home certification system has been established to increase the quality of houses when they are built, and the number of certified homes is increasing.

As for financial incentives for people to buy pre-owned homes, two possible suggestions are: providing more tax breaks on home loans for pre-owned homes than on those for new homes; and taking the renovation subsidy policies from the few municipalities that provide them and expanding the system nationwide.

These measures would, over time, transform Japan’s housing market into one with houses that are built to last and are used by many families over the years, which would address the vacant home issue at its source. Additionally, those urban areas which have been allowed to grow haphazardly must be constrained and cities need to be made more compact.

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