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1. Introduction
Supply Management of Rental Housing Facilities: Effect of
Changes in the Quality of Housing Equipment in the Tokyo Housing Rental Market
Takeshi So and Chihiro Shimizu
Abstract
The Tokyo housing market is considered to be one of the fastest evolving mar- kets in the world. In recent years, functions such as TV intercoms, bathroom dryers, system kitchens, and toilets with washlets, which are not often seen in European and US houses, have spread and become common in Japanese houses. Under such circumstances, the importance of various equipment ancillary to housing, together with the location and quality of the building, is increasingly a factor for determining the value of housing in Tokyo. This is because when a new product appears, the old product is ordered to be withdrawn from the market, or its commodity value is greatly depreciated. This study measured the economic value of improving the quality of housing with new equipment in the Tokyo rental housing market and clarified the extent of economic depreciation that is occurring due to obsolescence.
According to the obtained results, new functions are being added sequentially to the Japanese rental housing according to the age of the building, and these functions are non-negligible in the determination of housing rent, even when compared with location and building structure. The effect of obsolescence due to the addition of new functions was roughly—5%.
Keywords:quality change, housing equipment, hedonic approach, depreciation, obsolescence, cohort effect
JEL classification:R31—housing supply and markets; R32—other spatial production and pricing analysis
the period of high economic growth since the chaotic postwar period, this environ- ment has already greatly improved. In recent years high-performance housing stock has accumulated, and housing with functions not found in other countries have become common.
Needless to say, when attempting an analysis of a housing market, it is necessary to fully understand the characteristics of the country. Below, we set out the reasons that have led to the false perception of Japanese housing still belonging to the era when they were ridiculed as rabbit hutches.
Although commonalities can be found in many parts of the Japanese housing market in comparison with the European and US housing markets, the following heterogeneity is conceivable as the postwar historical origin is different. It is possi- ble that these are the cause of many misunderstandings.
In Japan, many houses were destroyed due to the large-scale air raids during the Second World War, not only in metropolitan areas but also in regional cities. In particular, a large number of houses were destroyed in the Tokyo metropolitan area,1and very-low-quality houses were built in a disorganized manner to satisfy the urgent housing demand in the chaotic postwar period. In the so-called high economic growth period that began in the mid-1950s, such houses were
rapidly upgraded as large numbers of apartment buildings came up
throughout Japan.2In addition, the drastic change in Japanese lifestyle through the rapid economic growth triggered the renewal of old housing stock by Westernizing the traditional housing style of Japan.
The private sector led construction to realize such a large-scale housing supply because the public sector was saddled with the large financial burden of postwar reconstruction. In particular, the government established a personal loan system to promote housing investment by households, and as a result, the ownership rate in postwar Japan significantly increased in comparison to before the war. Further- more, as the supply of public housing was limited, a dedicated housing market for single-person renters formed in the rental housing market, which was rarely seen in Europe and the United States.
As a result of these short-term housing renewals, Japanese housing was brought into a state where their style, quality, and housing equipment were greatly different depending on the period of construction. In addition, due to natural disasters such as the Great Hanshin earthquake3and the Great East Japan earthquake,4
housing earthquake resistance and other legal regulations have been successively
1 The Bombing of Tokyo was a series of firebombing air raids in Second World War. This was conducted on the night of 9–10 March 1945, 16 square miles (41 km2) of central Tokyo were destroyed, leaving an estimated 100,000 civilians dead and over 1 million homeless.
2 Although the improvement of low-quality stock developed during the postwar reconstruction period has been carried out in many areas, some areas remain in which stock has not improved, referred to as
“high density wooden structure areas.”Since these areas are vulnerable to earthquake disasters and so on, improvement is urgently required.
3 The Great Hanshin earthquake, or Kobe earthquake, occurred on January 17, 1995 in the southern part of Hyōgo Prefecture, Japan, when combined with Osaka, known as Hanshin. Up to 6434 people lost their lives.
4 The Great East Japan Earthquake occurred on March 11, 2011. The report from the Japanese National Police Agency report in 2018 confirms 15,896 deaths, 6157 injured, and 2537 people missing across twenty prefectures.
strengthened, thereby rapidly increasing the performance requirements of housing.5
This history is also closely related to the shortness of service life, which is a characteristic of the previously ridiculed Japanese houses. Several reasons can be envisaged to explain the short service life of Japanese houses, but the two most influential factors are considered to be the urgent task of promoting the renovation of low-quality housing stock that was built to temporarily compensate for the housing shortage after the war and the fact that the stock renewal was promoted by strengthening public regulations due to large-scale earthquakes and other disasters.
In addition, the high urban renewal rate can also be cited as a reason. In the rapid economic growth of postwar Japan, the main industrial structure shifted from primary to secondary industry in a single stroke, and urbanization was promoted throughout the country in the 1970s by developing highway and railway networks across the country, known as“Japanese archipelago remodeling.”In the 1980s, a policy was developed to transform the industrial structure, which was centered on secondary industry to tertiary industry. The transformation of Tokyo into an international finan- cial center was a symbolic policy, and against this background, redevelopment rapidly advanced in major cities. Under such circumstances, the conversion of building use of even physically usable housing into offices, commercial facilities, and so on was promoted through rebuilding, and the advancement of land use was promoted [1].
As a result, it can be said that the average service life of housing seen throughout the stock as a whole has been shortened over a long period.
In addition to these features, it should be noted that the speed of technological innovation in Japanese housing is fast.“Technological innovation”here refers not only to the improvement of productivity on the manufacturing side but also the significant improvement of household welfare levels through the release of new products developed by R&D. In recent years, smart houses utilizing IOT and so on have become symbolic of advancing technology, but functions such as TV inter- coms, bathroom dryers, system kitchens, and toilets with washlets, which are not often seen in European and American houses, have become common functions in Japanese houses and have greatly improved household living standards.
However, in a market where products with such new features arrive so quickly, the speed of obsolescence also increases. In these markets, when a new product appears, the old product is ordered to be withdrawn from the market, or its com- modity value is greatly depreciated, that is, the service life of products is shortened.
This study aims to measure the economic value of the functions of housing with new quality in the rental housing market in Tokyo, where technological advance- ment has been the greatest, and to clarify how much economic depreciation is occurring due to obsolescence. In Section 2, we present the model and the frame- work for empirical analysis together with the data, and in Section 3, we present the estimated results. According to the obtained results, new functions are being added sequentially to Japanese rental housing according to the age of the building, and these functions are non-negligible in the determination of housing rent, even when compared with location (LC) and the building structure (ST). The effect of obso- lescence due to the addition of new functions was roughly—5%. In Section 4, we summarize the results by way of a conclusion.
5 In response to major disasters, the Japanese Building Standards Law was revised. The first major revision of the Building Standards Law was in 1991, and the revision strengthened the earthquake resistance standards. After that, following the two great earthquakes, the standards strengthened.