In contrast, apartment prices in Japan have risen by only 36% over the past ten years. After a long period of decline and stagnation, they returned to the level of 1988. What are the causes of such a development and what do the Japanese do differently?
People all over the world are moving from the countryside to prosperous cities with the prospect of a better life and more opportunities. As the population grows, so does the demand and need for housing. According to a study by the Federal Reserve Bank of Dallas, cities in advanced economies were able to absorb this until the second half of the 20th century thanks to the development of transport infrastructure, allowing for a sufficient increase in the supply of land and apartments within driving distance. Thus, nominal prices rose only by inflation, and real prices remained the same after subtracting inflation.
However, after the Second World War, cities ceased to be able to increase the number of apartments in proportion to the growing number of inhabitants. Whoever wanted to get good housing, which was in short supply in the city, had to offer more money, and prices in most cities of the developed world began to rise faster than inflation. The main cause, according to the study, was the increasing complexity of building permits, which limited new construction and slowed the development of transport infrastructure.
Current developments in Prague
Prague, which is also a very attractive place to live in international comparison, has also experienced a significant increase in housing prices in the last decade. Students and professionals from various industries move to the capital looking for work. The number of inhabitants of Prague is therefore growing steadily. In order to meet the growing demand for housing, the capital city should therefore build at least 10,000 new apartments per year according to its Housing Development Strategy. In the last ten years, however, they managed to build only 4-6 thousand per year. The housing deficit is thus constantly growing and thus increasing the pressure on prices.
There is a lack of new apartments on the market and Prague, like other Western cities, is experiencing high price growth, which negatively affects the availability of housing. The situation is aggravated by the fact that the statistical office does not measure the total number of inhabitants of Prague and the total demand for housing. Only the population with permanent residence is included in the statistics. At the same time, another quarter of a million inhabitants can live in the city without a permanent residence!
The Japanese story and price developments
In Japan, the planning and construction of new housing and transport infrastructure is faster, allowing for a more flexible response of supply to demand and greater affordability of housing for all. The country is actively promoting construction, and the local supply of apartments is therefore currently even higher than the total number of households.
Japan had already experienced a spike in prices before 1991 and decided to address the stagnation problem by changing land use planning and permitting processes. This helped to gradually deflate the price bubble and return prices to normal levels. Although prices have started to rise again since 2013, this rise is not dramatic due to sufficient supply. By 2023, prices have risen to a level similar to what they were in 1988, more than 30 years ago.
What makes the Japanese housing market different?
In contrast to the Czech Republic, where Prague alone has 22 building authorities, in Japan territorial planning is provided centrally by the Ministry of Infrastructure and Transport. Although this system limits the possibilities of local residents to influence the transformation of the neighborhood in which they live, on the other hand, it allows the interest of the whole society to be promoted and the construction of a sufficient number of apartments is permitted more quickly.
In addition, the approach of Tokyo residents is slightly different. Residents are used to the constant transformation of the city and are not opposed to the growth of buildings. In the vicinity of the subway lines, huge apartment complexes can be created, which are able to offer enough apartments for new arrivals. In contrast to the Czech Republic, spatial planning differs in one key aspect. Housing construction is permitted in all zones. New apartments can thus be flexibly created even in the place where offices were originally planned without the need to intervene in the city’s spatial plan.
Comparison and outlook for the future
While both cities – Prague and Tokyo – thus offer many opportunities and have the status of attractive cities, attracting a workforce with great potential, the expected development of apartment prices and their availability are very different.
Japan, with the possible exception of Tokyo, expects a decline in the number of households. There is a surplus of apartments on the market and it can be assumed that prices will not rise dramatically. On the other hand, Prague faces the big goal of at least doubling the rate of construction of new apartments, otherwise it will see the same breathtaking price growth as in the previous ten years. And that will mean the need to solve more and more problems with the availability of housing.
Jan Kohn Happily, economic analyst
We also published the article on the Asiaskop.cz server, where we are devoted to the topics of East and Southeast Asia.