Japan's housing industry is facing the reality that it is possible to have "too much of a good thing." That's because while America's real estate industry is wrestling with a lack of availability that has caused a housing crisis, Japan has a housing crisis for the exact opposite reason. It's an oversupply of properties, not a lack of inventory, roiling Japan's housing market.
According to Japan's Ministry of Internal Affairs and Communications, nearly 9,000,000 vacant properties exist in Japan. The current tally represents an additional 500,000 vacancies that have hit the market since the last time the Ministry released these statistics in 2018. Japan's vacancy rate has surged by 80% in the last 20 years. Nearly 14% of Japan's homes are vacant, and the average in rural areas is closer to 20%.
Contrast that with the most recent housing data from the US Census, which shows that America's nationwide vacancy rate for rental housing is only 6.6%. The home buyer’s market in America is even tighter, and less than 1% of the total inventory is available. While America's vacancy rates have remained stubbornly low for several years, Japan's continue to climb.
A report by Japan's Nomura Research Institute predicts that Japan's vacancy rate could surge to 30% by 2033, which is less than 10 years from now. The long-term implications of a 30% vacancy rate for any country's real estate industry and economy are frightening to contemplate. First, it means there is little chance that occupied homes will appreciate.
Second, having that many vacant houses change the entire character of most neighborhoods for the worse. Regardless of where they exist, vacant houses are targets for unsavory activity. Even in a country like Japan, with a famously low crime rate, having one vacant house out of every three would allow squatters and other destructive elements to take root.
The Nomura Research Group's study recognized this risk by saying, “Unoccupied houses become sites for trash dumping, are susceptible to collapse, and attract suspicious persons. Having 30% of houses vacant is certainly not desirable from the perspective of safety and disaster prevention.” Anyone who has ever had a group of squatters move into a vacant unit in their neighborhood can attest to the chaos they can cause.
Unfortunately for Japan, the country's housing crisis reflects demographic trends that will be hard to reverse. The oversupply in housing reflects a decades-long population decline that Japan has been unable to reverse. The number of children being born in Japan has gone down for the last 43 years consecutively, and the country's population has fallen by 800,000 people since the last census in 2022.
In other words, Japan's real estate developers have built more homes than the country needs, and it would probably take 50 years of sustained increases in birth rates to rebalance the equation. That leaves Japan with very few options for easing its housing crisis. To be specific, other countries worldwide are dealing with declining birth rates and an abundance of homes, especially in their rural areas.
Many of those countries have responded to that population loss by encouraging foreign investment or immigration. One example is Italy, which has a program allowing foreigners to buy vacant homes in its deserted villages for $1 if the buyer agrees to renovate the home and take residence there. However, settling in a remodelled villa in the Italian countryside carries much more romance than moving to Japan.
Although Japan is a popular tourist destination, it’s very insular culture and open ambivalence toward foreigners make it an unlikely destination for non-Japanese. Furthermore, Japan has a much more robust economy than Italy, which makes remodelling vacant houses an expensive proposition.
If Japan shared a land border with the US, they might be able to set up some sort of guest residency program, thereby allowing both the American and Japanese governments to collaborate and help solve their dueling housing crises. Unfortunately, that's not possible, which means Japan's housing oversupply crisis will get a lot worse before it gets better.
