Summary

The Japanese housing market presents a unique blend of characteristics shaped by geographical constraints, historical developments, and public policies. One of the most striking features of the Japanese housing market is its adaptation to the country’s geographical constraints. With only 29% of its land area being habitable, Japan has developed a housing sector that revolves around compact and efficient use of space. This limitation, coupled with the frequent occurrence of earthquakes, has necessitated the development of earthquake-resistant buildings and stringent regulations. However, technological advances have led to the rapid depreciation of housing structures, a hallmark of the Japanese market, resulting in early demolitions and a high volume of construction activity.

The post–World War II era brought significant economic growth and societal changes in Japan, influencing housing demands and styles. Urban migration, particularly toward major metropolitan areas such as Tokyo, has resulted in high demand for housing in urban areas. Despite being the world’s largest metropolitan area, Tokyo still enjoys affordable housing when compared to other major global cities. This affordability can be attributed in part to public policies, such as liberal and transparent land use regulations that encourage construction activity. Fiscal programs based on a series of 5-year housing plans, such as the provision of public and quasi-public housing and subsidies and tax incentives to developers, have also addressed housing shortages, particularly in urban areas.

However, tax incentives and legal protections for tenants created unintended distortions in the supply of housing, leading to an abundant supply of small rental units while failing to address the shortage of larger rental units for families. In addition, an aging and shrinking population poses a significant challenge to housing stock management, even in major metropolitan areas. As the population declines, many houses become vacant or underutilized. Despite these significant challenges, Japan’s approach to urban planning, building technology, and market regulation offers valuable insights.