Why Are Japanese Homes Disposable? (Ep. 157)
In most countries, houses get more valuable over time. In Japan, a new buyer will often bulldoze the home. Why? That’s the question we try to answer in our latest Freakonomics Radio podcast, “Why Are Japanese Homes Disposable?” (You can subscribe at iTunes, get the RSS feed, or listen via the media player above. You can also read the transcript, which includes credits for the music you’ll hear in the episode.)
Jiro Yoshida, a professor at Penn State University who specializes in real-estate economics, tells us that, per capita, there are nearly four times as many architects in Japan as in the U.S. (here’s data from the International Union of Architects), and more than twice as many construction workers. There is also a huge demand for new homes. When you put all those numbers together, it sounds like a pretty typical housing boom — and yet Japan has a shrinking population and a long-stagnant economy.
It turns out that half of all homes in Japan are demolished within 38 years — compared to 100 years in the U.S. There is virtually no market for pre-owned homes in Japan, and 60 percent of all homes were built after 1980. In Yoshida’s estimation, while land continues to hold value, physical homes become worthless within 30 years. Other studies have shown this to happen in as little as 15 years.
Does this make sense? Not according to Alastair Townsend, a British-American architect living in Japan, who is perplexed — and awestruck — by the housing scenario there:
TOWNSEND: The houses that are built today exceed the quality of just about any other country in the world, at least for timber buildings. So there’s really no reason that they should drop in value and be demolished.
In the podcast, we look into several factors that conspire to produce this strange scenario. They include: economics, culture, World War II, and seismic activity.
Richard Koo, chief economist at the Nomura Research Institute, has argued in a paper called “Obstacles to Affluence: Thoughts on Japanese Housing” that whatever the rationale behind the disposable-home situation, the outcome isn’t desirable:
KOO: And so you tear down the building, you build another one, then you tear down the building, and you keep on building another one, you’re not building wealth on top of wealth…And it’s a very poor investment. Compared to Americans or Europeans, or even other Asian countries where people are building wealth on top of wealth because your house is [a] capital good. And if you do a certain amount of maintenance you can expect to sell the house at a higher price. But in the Japanese case once you expect to sell it you expect to sell at a lower price 10 or 15 years later. And that’s no way to build an affluent society.
All that said, economists continue to debate whether a house is such a great investment in the U.S. One more burst bubble and maybe we’ll all start thinking about the Japanese model.
(Special thanks to Gavin Hayes and Paul Earle at the U.S. Geological Survey for helping us sort through earthquake data.)