So let’s say you’re an architect. And what you really like to design is single-family houses – houses with flair, with distinctive, maybe even avant-garde features, and you want to design houses that will actually get built. So if that’s who you are, then for you, Utopia might be Japan.
Jiro YOSHIDA: …so they make very, very weird looking or avant-garde looking houses.
Richard KOO: Well, one of…it’s hard to describe, but…
Alastair TOWNSEND: …quite avant-garde, radical design…
YOSHIDA: …strange-looking, weird-looking…
TOWNSEND: Living in the home is like climbing around a jungle gym or a matrix.
KOO: One of them was about four or five stories, but one wall was cut in such a way that the floor space at the fifth level was bigger than the fourth, and the third, and the second. And it looked very unstable. Of course, it’s highly eye-catching.
TOWNSEND: They don’t have handrails on stairways and balconies.
YOSHIDA: A three-story building can be built on, maybe 500 square feet.
TOWNSEND: They have walls that can open entirely exposing the house to the outside.
KOO: The design can be very, very sharp, or really, really unique.
TOWNSEND: Even homes that have no windows at all.
KOO: …and it was covered in this textured material that at least to me was a complete eyesore, but maybe for some modern artist, it was something to be proud of.
Okay, so if you are an architect, not only can you go wild with the design of Japanese houses. But even more important, there’s a lot of work.
YOSHIDA: There’s a huge demand for new homes.
Jiro Yoshida specializes in real-estate economics at Penn State University. He used to work on the same issues for the Japanese government.
YOSHIDA: So, on a per capita basis, the number of architects in Japan is 3.8 times greater than in the United States.
There are in fact more registered architects per capita in Japan than in any other country. Not so surprisingly, there are a lot of construction jobs too.
YOSHIDA: And, so in Japan, the construction employment as a percentage of the total population is 2.1 times greater than in the United States.
Stephen DUBNER: So let’s add this up: a lot of construction jobs, a lot of architects, and a huge demand for creatively-designed homes. So that sounds like your pretty typical housing boom, yeah?
TOWNSEND: I think you have to dig deeper than that.
Alastair Townsend is an architect in Japan. And as he’ll tell us today, the story of home-building there has an unusual wrinkle.
TOWNSEND: It’s just such a profound and huge thing. And it doesn’t seem to occur this way in any other country in the world. And so I’m genuinely, even though I know a lot about the topic, I’m still sort of baffled.
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On today’s show, we’re talking about the huge demand for new homes in Japan. Now, when you hear that phrase – “a huge demand for new homes” – you probably think it’s because of either a booming economy or a growing population, maybe both. But in the case of Japan, there is neither. The economy has been famously stagnant for more than two decades, and the Japanese population has been shrinking, dramatically shrinking, and continues to do so: the government says the Japanese population will decrease by an astonishing 30 percent by the year 2060. So what does this mean for housing? Japan has an abnormally high vacancy rate, estimated to be in the mid-to-high teens. So you’d think, with so many vacant homes, there wouldn’t be a lot of new home-building. You’d think that if someone was looking to buy a house, they’d simply buy one, maybe freshen it up, and move in. But that’s not what happens. Here’s Jiro Yoshida again.
YOSHIDA: According to an engineering study, approximately half of houses are demolished before 38 years of building age in Japan…
DUBNER: Okay, did you hear that? Half of all homes are demolished before they’re 38 years old.
YOSHIDA: So basically that is the half-life of housing stock in Japan. So half-life of housing stock in Japan is 38 years. In contrast, the half-life in the United States is approximately 100 years. So that’s a huge difference.
So more than 60 percent of all Japanese homes were built after 1980. Now, why would that be? Again, you might think it’s because of a baby boom or a growing economy, but Japan doesn’t have either of those. The reason that so many not-very-old homes in Japan are knocked down seems to be this: they’ve lost their value.
YOSHIDA: And in my estimation, the structure fully depreciates after 30 years for detached houses, and after 40 years for condominiums. So it’s really, really fast.
That’s right: a home in Japan loses its entire value after just 30 years – or, according to other studies, in as little as 15 years. Now that’s the house itself, not the land, although land values have certainly fallen since their peak. A little quick history here. During the last half of the 1980s, land prices in Japan more than doubled. Richard Koo is chief economist at Nomura Research Institute in Tokyo.
KOO: Land prices were so high that just the Imperial Palace garden in the middle of Tokyo during the bubble was worth the entire state of California back in 1989.
But that bubble burst and property values have fallen. Jiro Yoshida again.
YOSHIDA: Since then housing prices in Japan have been continually decreasing, except for a few years of small appreciation in 2007 and so on. Compared to 1991 price levels, current housing price levels will be probably 40 percent of the peak.
Okay, so that is a big fall in property values, 40 percent off the peak prices, but it’s not like they fell to zero. That is, however, essentially what does happen to the value of the physical house in Japan. There is only a tiny resale market in Japan for used houses; in most cases, when a property is sold, the house is demolished and a new one built. This is in direct contrast to most places – the U.S. in particular – where not only do homes keep their value, but older homes, with their Colonial charm or brownstone character, are particularly cherished:
TOWNSEND: The Japanese are willing to look beyond all of that and just demolish a house, even though it could provide shelter and it could be renovated for a lot less than they would spend building a new house.
Alastair Townsend was born in England, grew up in Iowa, and returned to England to become an architect.
TOWNSEND: Well, I met my wife, who’s Japanese, as a student in London. And we worked for several years for architects. But since I decided to study architecture I’ve always been fascinated by the radical homes that I saw in Japanese architectural magazines.
When they finished their studies in England, they saw that their opportunities would be limited.
TOWNSEND: We decided to leave London because it’s actually very hard to build new housing there as a young architect. Most of the commissions are renovations and refurbishments of existing old houses because the planning system makes it very hard to build new homes, and people value historic homes more than they do new ones. And we moved to Japan in order to get more experience and hopefully build more.
In Japan, Townsend found a huge appetite for new homes.
TOWNSEND: You see advertisements everywhere on the train and on billboards for new housing, commercials on television, TV programs.
In Townsend’s opinion at least, the fact that Japanese homes don’t hold their value changes what people are looking for when they hire an architect.
TOWNSEND: The economic incentives to build a house that will one day be resold don’t exist in Japan because of housing depreciation. And this means that a client is free to build a house according to their own personal preferences and their own idiosyncrasies.
Townsend also thinks that, with so many architects in Japan, they are all fighting to stand out in a crowd. Plus which, local governments typically don’t regulate neighborhood aesthetics like they do in many countries. So that may help explain all the unusual and avant-garde houses in Japan. But we still haven’t answered the more bizarre question: why are Japanese homes essentially disposable?
TOWNSEND: The houses that are built today exceed the quality of just about any other country in the world, at least for timber buildings. And so there’s really no reason that they should drop in value and be demolished.
So why are most houses knocked down when someone buys them? Coming up on Freakonomics Radio, we try to answer that question. Does it have to do with culture or economics or maybe manufactured fear?
TOWNSEND: I really feel that the risk of earthquakes to single-family homes is overstated, and it’s a way that house builders market their houses.
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So we’ve been talking about the housing market in Japan. Prices have fallen a lot since their peak, but the land itself continues to be valuable. The houses, on the other hand, lose just about their entire value after two or three decades, because most Japanese home buyers do not want used homes. Why? Here’s Jiro Yoshida again, from Penn State.
YOSHIDA: On this issue, people have many, many casual observations, or causal explanations. For example, many people say that Japanese consumers are just different, Japanese consumers just like new things, okay? For example, the most sacred Shinto shrine is called Ise Jingu…
TOWNSEND: And this shrine is a massive timber structure. But every 20 years it’s torn down and a new identical shrine is built on a plot next to it.
And that is Alastair Townsend, the British-American architect living in Japan.
TOWNSEND: And this is something very ingrained within the Japanese psyche, which values newness as something that is spiritually clean and pure.
So maybe the hunger for new homes is a cultural appetite, at least to some degree.
YOSHIDA: For example, if we take a look at the second-hand, or used car market, okay? Even used cars are traded really cheaply in Japan compared to other countries, so there’s something to it, but it’s not the whole thing.
Okay, so what else might explain Japan’s disposable-housing attitude? Let’s go back to World War II. The most famous U.S. attacks on Japan were the atomic bombs dropped on Hiroshima and Nagasaki. Both cities were devastated:
UNIVERSAL NEWSREEL FROM 1945: This is the gallant crew that rolled the big super fort, which carried the first atomic bomb to Japan. Piloted by Col. Paul Tibbets Jr. of Miami, carrying Navy Captain William Parsons of Chicago, who helped design the bomb, as an observer, and Major Thomas Ferebee of Mocksville, North Carolina, who pulled the plug on Hiroshima. The B-29 dropped its load of atomic death, which exploded with a force equal to 20,000 tons of TNT. A few days later, the second atomic terror was loosed on Nagasaki.
But the U.S. dropped a lot of non-atomic bombs in Japan, in a lot of other cities. Five months before the atomic bombs, more than 300 American B-29s started dropping more than 2,000 tons of incendiary bombs on Tokyo. Most of the city was burned to the ground. 100,000 people were killed and 1 million people were left homeless.
KOO: And after World War II, when everything was flattened by American bombing, they had to rebuild everything very, very quickly.
That’s Richard Koo, from the Nomura Research Institute.
KOO: And at that time, they didn’t pay much attention to the quality of houses that they were building.
TOWNSEND: It was certainly the case that after World War II, many of the houses that were built during the boom were shoddily constructed.
Alastair Townsend again.
TOWNSEND: They lack insulation and are generally very cold, they have heavy tile roofs, which make them a liability in earthquakes. So it’s understandable that those houses are being replaced.
So you can see why the first round of homes built in Japan after the war were torn down after not too long, especially as the country started to get richer. But there’s another factor that led the Japanese to think of their homes as non-permanent, and that is earthquakes. Twenty percent of the world’s earthquakes of magnitude 6 or greater happen in Japan:
KOO: And because of that history, Japanese have come to view the houses, building structures in general, as kind of perishable, because after each earthquake many of those are destroyed. And so there’s a fundamental feeling within the Japanese scheme of things that nothing is permanent.
So that makes sense, and it might help explain why Japanese homes depreciate so much and so fast. But as Jiro Yoshida tells us, there’s another earthquake-related explanation.
YOSHIDA: So the deep question is why do structures depreciate so fast and why do people have to demolish these old buildings so soon, and actually one very simple answer, and in a sense an uninteresting answer to that is the revisions to the building codes. And revision to the building codes especially with respect to earthquake resistance standards, okay? So in the past, the building codes in Japan have been continually revised after major earthquakes.
It began nearly a century ago with what is known as the Great Kanto earthquake.
YOSHIDA: And that Great Kanto Earthquake destroyed over 500,000 houses in Tokyo. And that was a huge, huge disaster. And after that Great Kanto earthquake, the building code introduced earthquake-resistance standard. And then those earthquake-resistance standards were updated in 1950 after Fukui Earthquake, in 1971 after the Tokachi earthquake, in 1981 after the Miyagi earthquake, and in 2000, most latest in 2000, after the Hanshin-Awaji earthquake.
So as new earthquake standards were put into place, older buildings were decreed unsafe. When a property was sold, the house would be torn down and a new house put up. But everyone we talked to for this story – Richard Koo, Jiro Yoshida, and Alastair Townsend – they all point out that today, even homes that easily meet earthquake standards, are still demolished when they are sold. Many of these homes, Townsend says
TOWNSEND: …exceed the quality of just about any other country in the world, at least for timber buildings. And so there’s really no reason that they should drop in value and be demolished.
So there’s no reason – except, maybe, fear of earthquakes, as rational or otherwise as that fear might be:
TOWNSEND: I really feel that the risk of earthquakes to single-family homes is very much overstated, and it’s partly a way that housing companies, house builders, market their houses by instilling, effectively instilling fear within their prospective customers by making so much of seismic technology, most of which is redundant. By the time that you have skinned a house with structural plywood, it’s sufficiently cross-braced to sustain an earthquake.
So think about this for a minute. If you buy a house, and you knock it down to build a new one because you think the old one isn’t safe – and if you know that the people who eventually buy that house from you will do the same … how much money and time do you think you’ll invest in taking care of your house? Richard Koo calls this the vicious cycle of the Japanese housing market:
KOO: Maybe they will keep their rooms tidy and clean, but externally, I mean once the house is built it’s never repainted again and a lot of external things are allowed to dilapidate, deteriorate, and then 20 years, 30 years the whole thing is torn down and another one is built in its place. So it’s kind of a vicious cycle, right? If you expect the house to last only 20, 30 years you’re not going to put much into maintenance. And as a result, the house really lasts only 20, 30 years.
Alastair Townsend has seen this same lack of maintenance.
TOWNSEND: That’s nowhere near as developed as in the U.S. where you have massive stores like Home Depot and Lowe’s where people can go and buy every part of the house. And it seems like many people in America are confident to build an extension onto their home, or finish the basement, or remodel a room. In Japan that really just doesn’t happen because part of that is there isn’t an incentive to maintain the house.
All right, so we’ve identified at least what seem to be several legitimate reasons why Japanese houses don’t hold their value over time. You might just say that – well, things are different in Japan; it’s not necessarily worse. But Richard Koo disagrees. A few years back, he co-authored a paper called “Obstacles to Affluence: Thoughts on Japanese Housing.” The paper argued that the habit of treating homes as disposable is extraordinarily wasteful and that it has contributed to Japan’s long economic slump.
KOO: 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. 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.
So we’ve come full circle. At the beginning of this story, when we heard about the huge demand in Japan for new houses, and architects, we might have assumed an economic boom was the cause. But not only isn’t there a boom. The ongoing slump – at least according to Richard Koo – may have been caused in part by Japanese attitudes toward the housing market. Now, if you’re an American or a Brit who suffered during the housing hysteria of the past decade or so, the idea of not locking up all your wealth in a house might be appealing. But the opposite of hysteria is not necessarily Utopia. It may in fact be its own sort of madness – which Alastair Townsend, even after six years in Japan, still can’t comprehend.
TOWNSEND: Ok, it’s one thing if it’s about, I don’t know, buying shampoo—but it’s not. This is like people’s biggest investment in their lives, and the Japanese are basically throwing it all away.