Low priorities

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DSCF2013It’s become an almost trite litany in the media: the poor become poorer and the rich richer, with the middle class mostly shrinking and absorbed by the former. The conventional narrative says that free market capitalism makes this so, as governments in the free world become “smaller” and thus less likely to regulate economic functions. But more fundamental to the issue is the idea that priorities are shifting away from the poor.

An article in the Dec. 3 Nihon Keizai Shimbun reports on a survey completed by the Ministry of Internal Affairs and Communications in September and just released to the public. The survey collected data from local governments regarding public buildings, including apartments and schools. One of the more startling statistics is 12,251, which represents the total number of these buildings that local governments throughout Japan, both prefectural and municipal, want to tear down. The estimated cost of this mass demolition would be ¥403.9 billion, a huge burden for municipalities, most of which are cash-strapped anyway. But the cost of maintaining these buildings is probably higher, since it’s an ongoing expense. The reasons local governments want to tear down these buildings is simple: they’re old–the average age is 41 years–and the population is expected to continue decreasing. This number doesn’t include buildings that will be renovated or replaced after they are destroyed. It’s only buildings that will be gone for good. At the time the survey was conducted, 40 percent of these buildings were in use, while 47 percent were not in use at all and were thus shuttered. As far as plans for demolition go, 32 percent will be torn down “within a year or two” while the fate of 41 percent was “not known” at the time.

It’s a huge number, but if you’re at all familiar with construction trends in Japan it’s probably not shocking. Just walk through any business district in Tokyo and marvel at how many new skyscrapers are going up, replacing other buildings that were put up only thirty or so years ago. Buildings in Japan are notoriously short-lived, and, of course, outside of the large cities there is even less reason for keeping buildings that no longer serve a function. Populations and tax bases continue to shrink, so there is no need to maintain a school that has no students, or a public housing project that’s only 30 percent full.

But the fact is, there is a shortage of low income public housing in Japan that continues to get worse. Granted, the problem is mainly in the major cities. In the greater Tokyo metro area, there are nine applications for every vacant public housing unit. In Tokyo itself, the ratio goes up to 30, and in Osaka it’s 17.5. Note that these projects are for low-income residents, meaning they can only qualify for housing if their household incomes are below a certain level, or if they have some other qualifying circumstance (single parent, disabled). According to the ministry survey, the largest portion of public buildings that are targeted for demolition in Japan is in the housing category–23 percent. In the countryside, it likely doesn’t matter, but as you get closer to cities it does, because more people qualify for and are seeking low-income public housing. So as the number of needy residents increases, the number of units would seem to be dropping. This, of course, is conjecture on our part, but we know that during his long tenure as governor of Tokyo, Shintaro Ishihara stopped building new public housing units, and in the past decade or so many low income public housing projects in Tokyo fell to wrecking crews. The ministry survey doesn’t address this part of the situation, so we don’t have proof.

But there is one area where low income housing isn’t being built but is acutely needed right now: the regions of northern Japan devastated by the earthquake and tsunami of 2011. In the aftermath of the disaster refugees who either lost their homes outright or who were forced to evacuate their homes due to radiation have moved into temporary housing, either rental properties commandeered by the government in far-flung places, or makeshift structures set up specifically to house them. Originally, these people would be living in these residences for two years, but more than 1,000 days after the disaster, 80 percent are still in temporary quarters, much of which in the case of kasetsu (makeshift) structures is falling apart. The main problem is where to move these people. Many who owned their own houses before cannot afford to build new ones because the government won’t allow them to rebuild on their old property (either inundanted, unstable, or irradiated), and land that is available nearby is too expensive owing to market dynamics brought on by demand. Most likely they are still paying mortgages on the houses they lost. So it isn’t just people who were renting before who need permanent subsidized public housing. It is homeowners who lost everything and are still paying. But the promised buildings have not materialized. Miyagi Prefecture, to take the example of one local government, plans to build 15,700 units of public housing, but two years and nine months after the disaster, only 1 percent has been completed. The immediate problem is land availability, but the long-term and more intractable problem is lack of resources and initiative.

Japan is going through a short-term housing construction boom right now thanks to the consumption tax increase that goes into effect in April. Construction companies are short of skilled workers, and are using them for more profitable projects, such as single family homes, rather than public housing projects that don’t pay much. According to a recent report on NHK, the city of Koriyama in Fukushima Prefecture has set aside a large tract of land for a new public housing project that was supposed to start construction last August, but no construction company even submitted a bid because the local government set the starting bid too low. Builders looked at the project and assumed they would likely lose money on it, so they didn’t even show up. Throughout the disaster area, there are plans to build more than 27,000 public housing units specifically for disaster victims, and by the end of September only 450 had been built. Right now more than 100,000 people are still living in temporary digs.

Will things change once the tax-inspired housing boom is finished and construction of single-family homes slumps again? Not likely. Tokyo needs those workers to build infrastructure and venues for the 2020 Olympics. The Tokyo government, as well as the central government–who has already expressed is feelings for the poor by recently tightening welfare requirements–is more than willing to pay top yen to get the city ready for the big event, which means other construction projects, those with lower priority, will be neglected, probably until the next decade, at the earliest. And public housing has the lowest priority of all.

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4 Responses to “Low priorities”

  1. Troy Says:

    I consider housing issues to be the primary economic question and challenge in every place and time, at least since the last good land was claimed by somebody, thereby establishing the divide between renters and landowners.

    Even the Eurosocialist paradises of Netherlands, Denmark, Norway, etc. are finding out the hard way again that real estate is a very curious sector of the economy, capable of capturing all the wealth we care to collectively throw at it.

    http://www.businessweek.com/news/2013-11-19/indebted-nordic-households-pose-risks-to-economies-oecd-says

    Japan, I guess, did a reasonably good job responding to the postwar housing crisis and follow-on booming 1960s and 70s with their “kodan” construction programs, even though the quality of life in these public housing units wasn’t all that hot compared to the parallel postwar suburban booms in the US.

    But housing is still insane in Japan. Rents themselves aren’t too terrible I guess, but man is the bare land expensive.

    Real estate has become a primary sector of corruption I suspect; too many vested interests with too much money to influence the policies and too much vested property interest in van Wolferen’s infamous “System” to defend against possible polices that would actually lower land values.

    ~$50,000 paid for a 2300′ lot puts rather marginal unserviced Chiba land at $1m/acre. Like I said, insane, but at 2% interest rates the carrying cost of this buildable land is only $80/mo, making this purchase actually “pencil out” vs. renting.

    BOJ is actually buying REITS with its QE intervention! Insanity squared; too bad the BOJ can’t just fund tons of new affordable housing with it directly.

    http://www.reuters.com/article/2013/06/15/us-japan-economy-boj-idUSBRE95E04M20130615

    But the good news I guess is that Japan is actually depopulating now — Chiba this year and even Tokyo itself next decade.

    Vacancy is the only thing that can reduce the cost of housing for all entrants (subsidies just serve to either raise the bid price by the subsidy or create long waiting lists, depending on the degree of availability).

    And Japan is going to see a lot higher vacancy from here on out.

    http://research.stlouisfed.org/fred2/series/LFWA25TTJPM647S

    shows core working-age population is down 10% from the peak.

    Age 25-54 population, compared to 2000, is going to be 20% lower in 2020 and 30% lower in 2030, 40% lower in 2044.

    This is a demographic trend the world really hasn’t seen yet, and it is my hope that it will make housing much less unaffordable for the Japanese kids now arriving on the scene (current births are 1M/yr, half the population growth Japan saw during the early 1970s baby boom echo).

    Today’s kids are going to need the help, since they’re also going to be stuck with the quadrillion yen national debt to pay off, should “The System” ever decide to get serious about the macro situation.

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  2. Martin Says:

    I can’t believe that people are still paying loans on destroyed, unusable property. If you have the nerve to put up with a few contacts from scary (but harmless) chimpira, these situations are easy to deal with in Japan:

    Get a lawyer with consumer litigation experience (lawyers are the only thing cheaper in Japan than the U.S., hallelujah!).

    Have the lawyer tell the bank that you’re dispirited, see no meaning in life, and plan to default on the loan and let the bank take the property back, and maybe throw in a personal bankruptcy to boot.

    The property has negative worth to the bank. They can’t sell it, and they have to pay to remove debris, tear down the structure, fence it off, protect themselves with insurance, and keep an eye on it. They don’t want it. They really, really don’t want it.

    Have the lawyer offer that you’ll keep it and continue payments only if the outstanding amount owed is refinanced, contractually, to 10 percent of what it currently is.

    Give them a month to chew on it, with a specific deadline.

    You won’t be able to get another loan. But you weren’t able to get another loan before anyway.

    Cosigners complicate things, but not as much as you’d think, but you do need the lawyer, and a little bit of nerve.

    Like

    • catforehead Says:

      This is an interesting scenario and we would be very interested in seeing someone carry it out. The problem is that in Japan home loans are typically recourse loans, meaning no collateral and therefore lenders can continue demanding payment on the loan even after foreclosing on a property. As you say, the borrower has nothing to lose except his credit rating and a home that is worth nothing anyway, but by the same token the lender has the legal right to get their money by any means necessary. For sure, the property they take is more of a pain than its worth, but they can still demand payment afterwards.

      Like

      • Ahmed Fasih Says:

        Thanks to both of you for raising this point: I was wondering about how bankruptcy worked in Japan during the whole time reading this post. Would you have to declare bankruptcy for the debt to be formally annulled? Because it sounds like even defaulting on the loan and going into foreclosure wouldn’t stop the bank from continuing to demand payments.

        Like

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