15 March 2018

What Tokyo can – and can’t – teach us about the housing crisis


Be more like Japan. That is the takeaway from a Bloomberg column by the always-interesting Noah Smith. His is the latest article to look at Tokyo’s approach to housing for answers to the spiralling cost of homes in comparable Western cities.

On the surface, the lessons are straightforward, with Tokyo serving as a heartening reminder that the basic laws of supply and demand actually hold true. The best way to lower the cost of housing is to simplify the planning system and let people build more houses. By starting on 100,000 new dwellings a year, Tokyo’s housing stock has more than kept pace with its population. As a result, the cost of housing is low.

The sacrifices involved have been limited. Tokyo has largely built upwards, preventing sprawl. And as Tokyo has grown denser, people’s homes have actually got bigger. Dwelling size increased by 28 per cent between 1988 and 2013.

So far, so encouraging. But look a little closer and you realise there is, as Smith accepts, a big problem with comparisons with Tokyo. In part, the issue is, strange as it may sound, tectonic. Japanese houses have generally only lasted 30 years, thanks largely to the need to earthquake-proof cities. As this 2008 Nomura report explains, after 15 years the typical Japanese house is worth nothing. The Japanese relationship to a house is, at least in economic terms, not that different to their relationship to a fridge.

Property is not a store of wealth for the Japanese middle-class. And so there are far fewer NIMBYs to get in the way of a simple, stream-lined planning system.

It almost goes without saying that the Japanese approach is a far cry from how we have done things in Britain. Unlike Japan, Britain’s housing market is being asked to do more than provide a roof above everyone’s head at an affordable price. It is also the market in people’s most valuable asset and it has, in recent history, been the engine of wealth creation for those who happen to own a home.

The result is millions of British home-owners who have a massive economic stake in Britain not solving its housing crisis. There may be a veneer of concern about the countryside and green spaces. In some cases that concern is, I’m sure, sincere. But opposition to house building is almost entirely an expression of economic self-interest.

This means that fixing housing involves taking on a highly-motivated, overwhelmingly Conservative voting portion of the population. The political argument for action on housing – that you won’t create a new generation of capitalists if they don’t own any capital – is, in isolation, entirely sensible. And lowering the cost of housing is indubitably in Britain’s economic interests. But the government are yet to concede the obvious political and economic trade-offs involved and explore ways to minimise the downsides while maximising the upside.

For all the focus the Conservatives have placed on the issue, they are reluctant to admit what they actually mean by “tackling the housing crisis”. If the crisis in housing is that homes are too expensive, then the sensible definition of the “tackling the housing crisis” would be a fall in the house price to income ratio. But in the terms of reference for Sir Oliver Letwin’s review of planning – a document in which Sajid Javid had to be precise about the government’s aims – the goal is defined as supporting “an increase in housing supply consistent with a stable housing market in the short term and so that over the long-term, house prices rise slower than earnings.”

The government, then, does not want house prices to fall, but just to rise at a slower rate than earnings, which have hardly been rocketing upwards lately.

If the most obvious lesson from a comparison between Japan and the UK is that Britain has a NIMBY problem that will make progress on housing extremely difficult, the deeper problem is the awkward coalition arguing for action on housing.

On the one hand there are the economists, policy wonks and politicians who make the persuasive argument about the economic price we pay for expensive housing. It freezes up the labour market, hurts productivity and makes the UK a less dynamic place. It’s also the single biggest driver of wealth inequality. You can even argue, as John Myers has done for CapX, that the housing crisis has done more damage to GDP than anything since the Black Death.

Then there are the victims of that crisis: the renters priced out of buying their own home for whom the Prime Minister has talked of “restoring hope”. I don’t have the polling to prove it, but I can say with some confidence that this group of people are not yearning for a ruthlessly efficient housing market of the sort Tokyo enjoys. They don’t want to treat their house like a fridge: a consumer durable that they junk for a newer model every few decades.

What they want is what they parents have, and their grandparents had: a nest egg that means, whatever else the economy throws at them, they are sitting on a steadily appreciating asset. In other words, this group might want houses prices to fall now. But that will change once they have a foot on the ladder.

Something has to give. We cannot have a housing market that works in the interests of the economy and society while delivering ever-growing wealth to the British middle class. But I fear Britain is nowhere near ready to have an honest conversation about what our homes are really for.

Oliver Wiseman is Editor of CapX.