Every time I see this I have to laugh. If you live in Tokyo, I'd love to hear your anecdotal experience.
I have stayed and visited japan for the last 35 years, and find all of the "Tokyo is so affordable and buildable" is hilarious. The breathless articles I read about it leave out fundamental aspects (the incredible density, the absolute destruction 70 years ago, the corruption [especially in Shinjuku], the size of the "livable apartments", the need to rebuild anything from before 1980 for earthquake safety, that youth population falling by half, the stagnation of wages), and the fact that most people who can leave Tokyo to raise children do (even if it means commuting 2hrs each way every day on a train).
This just doesn't match anywhere in the US or frankly almost anywhere else in the world. I know 2 people who actually still live in Tokyo. One is a 28 year old single foreigner, and the other is stuck in a 100 year mortgage with their extended family. All the rest moved.
> and the fact that most people who can leave Tokyo to raise children do (even if it means commuting 2hrs each way every day on a train).
Is that why the population is 14M - 34M in the metro? Bigger than every American city and about the size of all of Canada combined? They just can't get out to where it should by all accounts be cheaper? Is there a fence or something?
It takes too long to get there by train. Shinkansen is too expensive for daily commuting (for normal people). Two hours each way sleeping on a commuter train is about the limit of what people can tolerate. I love Tokyo and the rest of Japan. It's amazing, but if you put any other culture in Tokyo, it would be unlivable.
So Tokyo isn't affordable and livable because it's dense?
I lived in Japan so I understand where you're coming from...but the fact that "fleeters" are even a thing should tell you they are doing something right with housing prices. Can you imagine an American person in Seattle deciding to just work 30 hours at a conbini and being able to rent a studio?
A couple things:
1. Sure, Tokyo is dense and can be kinda soul crushing...but the option of having a roof even at incredibly low income is better than none.
2. Zoning to allow residential to be on top of business, and allowing smaller apartments and 2 very obvious things that make it literally "easier to build" in Japan than the US.
This isn't even just a Tokyo thing. When I lived in a pretty nice suburb in Okinawa a lot of my friends were paying like 300-400$ usd for rent, and I rarely ever saw homeless people. I live in Honolulu now and there's homeless everywhere and good luck finding any studio under $1300. There's a pretty obvious difference.
I agree that there's gotta be a place to live (that doesn't require a 1hr car drive or a multi-hour commute) to support city living at reasonable working wage and that is not possible in most rapidly urbanizing/gentrifying areas of the US (it is possible in Detroit or even NY to some extent).
That probably means something of a couple hundred ft2, not 1000. However, the reasons for homelessness in Hawaii vs Tokyo (I've actually seen some in the last 5 years!) has a lot to do with weather, social acceptance, and income from panhandling (which doesn't happen in Tokyo).
Also, a lot of the homeless I see outside (not the hidden homeless who have one or more jobs) in the US have problems that would lead to incarceration in Japan (drug use, untreated mental illness). At the same time I've known older people in Japan who would be in memory care in the US who were helped by the community to remain living in their houses in Japan. It is much safer in Japan, but at the same time any activity that makes it feel less safe is much more likely to be "policed".
So why is the population of Tokyo steadily increasing while the population of Japan overall is decreasing? Is it all just foreigners explaining 2+% growth rate in recent years despite them making up less than 3% of the cities total population? Or are the people stuck in 100 year mortgages just having lots more kids than everybody else?
I don't want to be too combative here, but Kurthr's comments are completely unrelated to the sentiment of most people in Japan. I don't know where they came from. I lived in Tokyo for years and still have an apartment there. You can work part time for minimum wage and still afford an apartment you can live in comfortably.
It's not going to be a US-style giant house with a green lawn, but it isn't some dystopian hole in the wall or giant share-house like non-wealthy San Francisco residents are stuck in.
You can fire up Netflix and watch some of "The Full-Time Wife Escapist" on there to see a normal small apartment in action. It's tiny by US standards, but people can live there comfortably.
The pricing is set by the marginal housing. Marginal housing is older tiny apartments that would be considered deathtraps in the US or Europe. Those older 7 story buildings are torn down and replaced with 30+ story apartments (in less corrupt ways than in the past at densities that most other countries would consider too high) which are unaffordable to the people who are forced to leave and commute long distances to newer/safer, but similarly high density housing.
Because ALL of the jobs are in Tokyo (or Osaka, or Fukuoka). Note that Chiba city is growing faster than Tokyo and it's a suburb (same with Tsukuba)! Shin-Yokohama is getting too expensive.
Meanwhile in western countries the prices go up for no reason! That 30 year old house? It's worth double what it was 10 years ago! And now it's a 30 year old house instead of a 20 year old house. This is reality where I grew up. Most of my peers are priced out too. And I grew up out of the city centre...
And interest rates went from 20% in 1980 to 2% in 2021. Like fashion bags and NFTs they were financialized. The market can remain irrational longer than you can remain solvent. Seen China and the massive building there, but it didn't lower prices... they're higher than SF or NY!
It's not just housing. Look at bare land or abandoned buildings in CA. Those also grew by similar amounts or even more! Why develop it when it goes up in value? Why not own multiple empty homes when they "only" go up in price. Well, welcome to higher interest rates and likely a less deflationary world (deglobalization) with non-wage inflation that prevents the Fed put.
Interest rates don’t really matter to housing prices when supply and demand are at equilibrium. It may shift that equilibrium point but Japan has had the same exact interest rate policy as the US over the same time period but the price of a house in Japan hasn’t increased in nominal terms since 1990.
Everything you point out isn’t driven by interest rates but instead by artificial supply constraints on housing.
Well, actually Japan's interest rates haven't been falling they have been below the inflation rate (eg mostly below 1) for the last 30 years. That is literally the lost 3 decades since 89, when they had a huge housing crash.
However, China where they have built massive quantities of housing, it is an exceptionally expensive financialized asset, because that is where lending went.
Housing isn’t a financial asset in Japan because you can build as much as you need so it doesn’t appreciate. Once supply caught up and overshot in china prices plummeted. It really is that simple.
Agreed. Don't forget the massive implosion of the real estate market 30 years ago that turned a whole generation off of buying property and bankrupted vast swathes of the population.
Said "breathless articles" usually just grab some "rate of price increase" chart benchmarked to the most severe recession in recent decades and start celebrating just because Tokyo also has good housing policy. But in trying to advocate for good policy elsewhere, they just end up championing national recession, international stagnation, depressed wage growth, and more.
Yes. It is your property, build it out as dense as you wish. There is not the demand in rural Montana to build out a 160 acre ranch with apartments. Just remove density restrictions and let people build to meet demand.
Basically the same thing in this case. You can't have no zoning, but having a baseline bare minimum set at the federal level without carveouts for specific neighborhoods or districts is mostly just about superseding the authority of councils to mess around.
We need to use a state or federal authority to take the power of municipalities in the same way the builders remedy works.
What is substantively different about any of these places that require different zoning laws? Do you think someone is just going to build a mega skyscraper in rural Montana because they can?
I don't presume to know the needs of Montanans. My state is diverse enough that statewide zoning laws are obviously specifically crafted with a certain subset of the state in mind and are unworkable for different communities.
For instance, there are laws that prevent certain stores (alcohol sales, for example) from being within X miles of a school. There are cities where the central location where the central location of the town where all commerce happens and where the school is is less than a square mile.
Unless you're proposing legislating the removal or limiting of zoning on the federal level, it seems like an incredibly bad idea.
There's a huge cultural difference there though -- people don't trust stocks, bonds, or bank accounts. Housing is the only investment most people will consider.
Also those houses are being bought with money being smuggled out of China. For all of the reasons that patio11 gives in https://www.bitsaboutmoney.com/archive/money-laundering-and-..., real estate is an excellent investment for money whose provenance you wish to be hard to discover.
This is a negative way to look at China's history.
As a Chinese-American, whose family and friends all profited greatly from China's rise, I do wonder, how much of that profit was just being lucky enough to support the "winning team," and how much blood was shed on the other side.
We have a model for that in your birth country (American Civil War). But from my fractured knowledge of Chinese history, there's been a lot less backpedaling vis-a-vis the Civil War on ideological differences between the winning and losing side (and we mostly lament those as regression instead of progress).
In China, things have come back. People who escaped were invited back with promises of better treatment, even given platforms (eg, martial arts) but who knows what we Earthlings have lost from people who didn't. Biomechanics, biology, art, technology, philosophy...
Nor should they, cultural or not. Look how the government destroyed the Ant group recently. When they can unilaterally do that, how can you find a safe stock?
The Chinese situation is caused by government rather than by their culture. Chinese corporations are forced into inefficient state-mandated investments and provide meager rates of returns for shareholders. They get tons of shiny public infrastructure while savers are given nothing, and are not allowed to invest internationally. In other words, it is pure financial repression.
When very few can purchase a luxury suit in a ghost city in china, the infra build costs were high, but the available buyer population is way fn low - its inverse to supply&demand when it comes to chinese real estate.
The buyers would have to fund ALL the infra to power, water, feed such ghost city homes, and where will they work?
I used to work with a guy in SF that had a consultancy that would bring chinese 'students' on tours of the US to various universities to have them pick where they wanted to go to school.
These were the children of chinese oligarchs - and they would land in SFO with luggage full of cash - and, not knowing how things worked in the US, would jusr bribe their way through every transaction at ~$10,000 a time...
The chinese oligarchs own more of america than you may know.
Absolutely. IMO one of the biggest failures of public policy in the 20th and 21st century is the failure to recognize the basic mathematical fact that home values and home prices are the same thing.
You, mathematically, cannot have home values continue to go up over time without prices going up by the exact same amount.
At the national scale, people can build. Despite this, a house can be a good investment if a certain area becomes sought-after, and there are reasonable limits to how much can be built there.
A high Land Value Tax accomplishes this. It negates the appreciation generated merely by land scarcity and value of surrounding land, which means the only way to get gains from your real estate holdings is indeed to put labor and capital into improving it.
I think annual land value taxes are efficient at resource allocation but unacceptably punitive on owners. You should not be penalized or motivated to sell simply because a 3rd party can get a higher return.
Similarly, value gains from land appreciation are taxed at the time of sale. IF I pay annual taxes on land appreciation, I should be exempt from taxes at the point of sale, otherwise I am paying for that appreciation twice.
Land belongs to society, not whoever has a house on it. If you are using it ineffectively you deserve to be punished by society via taxes because you are directly making the community worse off.
I absolutely believe in property ownership. And that land is such a unique and important asset that it is utterly immoral for anyone except society as a whole to own it and tax those on it at close to its full value.
In this we have similarly strong feelings but opposite conclusion. I also think that land is a fundamental and important asset, but conclude from that it is immoral for an individual possession to be reliant and dependent on society.
I feel it in the same way that I would not want my ability to beath air to depend on some social utilitarian function that could decide it is better used elsewhere.
> it is immoral for an individual possession to be reliant and dependent on society.
Society is what defines the concept of land ownership and actively protects the ownership of land, so it's not possible to remove a dependency of the latter on the former.
Society accepts and protects property ownership of land but is not the only method possible.
Legal rights and social processes are just the most agreeable way to manage it amongst several people.
For example, You can own land if there is no society or other people to contest it. If you are alone on a island, there is no one to say you don't own it
Similarly, you can own land without social dependence if you have the power take or defend it.
If you've ever been mugged or read of nations conquered, it is clear that social consensus and the rule of law is but one mode of arbitrating property ownership. That said, it is one that works out quite well
> If you are alone on a island, there is no one to say you don't own it
Ownership has no meaning unless you can identify who does not have it, which requires at least one other person nearby. If you are alone on an island, you are just occupying it.
> Similarly, you can own land without social dependence if you have the power take or defend it.
This requires an army or militia, or an overwhelming technological advantage over those you are dispossessing. Those imply operating in a societ. Otherwise where does your militia and technology come from?
I agree that the sort of investment you are describing makes sense - but in practice those kinds of investments are out-competed by ones with better yields. If you are a developer, there is simply no financial incentives to choosing a lower yield financial vehicle. You'll just have more trouble finding funding and have less of a cushion for cost overruns.
I also think there's a strong economies of scale argument that "we" (society) would prefer most people rent (and use some sort of fixed or low-profit system that does maintenance at scale) as it'll result in lower overall costs. However it's absolutely true that home ownership is the best vehicle we've found for building inter-generational wealth so I'm not against it. Also one can simply prefer a society with more individual owners and slightly higher overall costs - reasonable people can disagree.
>I agree that the sort of investment you are describing makes sense - but in practice those kinds of investments are out-competed by ones with better yields.
I think that is a an advantage, not a disadvantage. There is no need for housing investments to have competitive yields. If you can make a profit building houses which have more value to buyers than your cost of inputs, someone will make them. It just won't be a speculative investment good.
I don't worry that people will stop making socks, shoes, or food because the profit margin in that business is lower than the market yield. If there is on opportunity for profit, someone will want do it. They just might not be funded by some massive financial hedge fund, which again, I think is an advantage.
Historically, home ownership has been a vehicle for intergeneration wealth building because it means taking on more responsibility, work, and risk instead of paying a 3rd party to do so.
I would argue that most people renting would not result in the lowest cost, because it turns responsibilities that a homeowner can do for free into 3rd party services which must be paid for. It is like saying that city run food kitchens would be more efficient than people cooking at home. Maybe it is "more efficient" if you count the homeowners implicit labor, but the dollar cost to the cooker is still going up.
I think most people would agree the goal is higher ownership and lower costs than now. I think this is actually reasonable if we fix some of the conditions that lead to house exorbitant growth in house value
> There is no need for housing investments to have competitive yields
I personally agree but you are not describing the economic system we live in.
> I don't worry that people will stop making socks, shoes, or food because the profit margin in that business is lower than the market yield.
This happens all of the time - but the market finds another equilibrium and continues to provide the good.
> It is like saying that city run food kitchens would be more efficient than people cooking at home.
Generally agreed - this would be more efficient. I also do not want it. It's more efficient in every way. There are significant economies of scale. There is a reason armies do not have each individual soldier cook their meals.
> I think most people would agree the goal is higher ownership and lower costs than now.
100% agree - but my point is that this is a local maxima. If we wish to globally minimize "total resource expenditure" then the Platonic best system is some perfectly managed hyper-apartment arrangement with the "optimal" allocation of affordances. Though, as I said, reasonable people can value things other than costs. We are generally always in a local maxima - but it's good to remember it.
>I personally agree but you are not describing the economic system we live in...
This happens all of the time - but the market finds another equilibrium and continues to provide the good
I just dont think we are on the same page here or think this is accurate for our system. The 1% profitable sock factory doesn't shut down because some investor somewhere starts making 100% ROI on bitcoins or tech stock. A carpenter doesn't lay down his tools because fund manager somewhere is making big bucks. I agree the prevailing rates on capital can have impacts on new growth in capital intensive industries, but that doesn't mean you wont be able to find a homebuilder if you have cash in your pocket.
>Generally agreed - this would be more efficient. I also do not want it. It's more efficient in every way. There are significant economies of scale. There is a reason armies do not have each individual soldier cook their meals.
I don't think resources like labor and time are truly fungible and can be treated as interchangeable. Efficiency is relative to the measure of value and the person making the valuation.
If I don't value my time or even enjoy cooking, paying someone to do it is not efficient for me, even if there are huge economies of scale. It might be efficient in terms of total hours to some central planner, but their valuation of my time and labor is not the same as mine. I am still paying money for labor that would otherwise be free. It may be horribly inefficient.
There is no maximally efficient platonic system without a universally imposed definition of the measures being optimized.
> There is no maximally efficient platonic system without a universally imposed definition of the measures being optimized.
Totally agree! All my global statements are gesturing towards the idea of such an idea - which is of course impossible but can be helpful to weigh alternatives.
> I just dont think we are on the same page here or think this is accurate for our system. [...]
I agree with everything you say here so I apologize for talking past you. What I was saying is that, within an investment category, higher yields chase out lower ones. It's not that the sock maker gets out-competed by bitcoin - it's that the person trying to sell "barely good enough" socks in the developed world gets zero shelf space compared to other options. Their product is profitable at the unit level, but can't find buyers efficiently enough to support the costs of doing so.
If you are searching for investment at a "below-market" rate, you are going to be at the back of the queue. Also, because you are definitionally working on low margins, your ability to adapt for unforeseen circumstances is h̶i̶g̶h̶ low, increasing your risk. That puts those kinds of financial approaches in a "high risk, low yield" quadrant as far as I can see it.
We could, of course, simply choose to build housing at close-to-cost and then package & sell that as bonds (basically). You could probably find takers, even if it's riskier than many bonds, but you need to have the funding assembled beforehand. I just mean that it's a hard problem and I see why these systems have not risen up naturally in our building ecosystem.
> valuation of my time and labor is not the same as mine
You are absolutely correct that this is an impossible problem to solve practically, but in a thought experiment it's simple to say that the central planner perfectly discovers & enumerates every individuals' value on time and labor and creates the optimal system with that in mind.
Returning your money (at 0% ROI) is not what people want in an investment. What you're describing is a savings account, or even a bit less. Historically you might make a percent or two after inflation, but not the last couple of decades.
I disagree. I think a lot of people would be fine with a 0% ROI investment if it comes coupled with a free house to live in for the rest of their lives.
A house is not a stock, bond, or number in a savings account. You get utility from living in it as well.
A 0% ROI would however make that investment unattractive for 3rd parties who don't live in the house.
There are lots of different types of investments.
Housing is historically considered an excellent hedge against inflation ("Land, they aren't making it anymore")
However, purchasing a house it is not just an inflation hedge. It comes with a house you can live in! This is an attractive quality for many of us humans who like living in homes.
Taking the modern definition of inflation as measured from the purchasing power of currency within the economy, you'll find house price increases are actually a major driver of inflation. If you allowed construction and more supply, house prices would stabilize and inflation would go down. If you want to hedge inflation just buy Series I bonds instead. There's other ways.
Really though, I would argue that housing in aggregate is not a good hedge against inflation because while it is true that the price of an average square foot of housing in the United States has gone up almost zero percent adjusted for inflation over the last 50 years, you have had to do 50 years of maintenance on it, 50 years of insurance premiums, 50 years of paint, siding, roofing, etc. And a 5% realtor commission. By definition, it has therefore, on average, trailed inflation.
If you are looking at specific houses, in specific areas, that's not "housing is a good hedge against inflation" it's "if we look at the winners in a speculative market, we find that they have won" which isn't so much an investment philosophy as a tautology.
That said a mortgage may be a good hedge against inflation but only by virtue of it being a long-duration fixed-interest debt facility with preferential interest treatment at income tax time. And 5X leverage.
