Housing supply is short all around the world - but not in Japan (part 1)
Japan seems to have solved the housing shortage problem that is plaguing most other countries worldwide – and it may well be about more than just demographics. The US has a 5-10M home shortage, while Japan has a surplus (source). In fact, Japan has had a housing surplus every year since 1968. Is it a coincidence that their nationally controlled zoning system was setup in 1968? Let’s explore.
Following World War II, Japan embarked on a significant rebuilding effort and shifted away from military spending (as the US led and operated their military as a condition of their surrender). This led to Japan putting its full economic weight behind growth and redevelopment, which it did in spades, quickly rising to be the second-largest economy in the world at the time. However, they soon realized that their cities were getting congested, uncomfortable, and difficult to improve and build up further. This realization led to a new approach to zoning and housing design that still exists today, making Japan uniquely resilient while the rest of the world’s housing markets are redlining.
The differences are (very) basically as follows:
To compare apples to apples, Tokyo (depending on how you delineate it) has 1.6 times the population of NYC (14M vs 18.5M), but built 4.3 times as many houses in 2020 (source).
Japan's zoning system offers two key features that contribute to its effectiveness:
Simplicity: Unlike the complex zoning systems seen in the United States and many other countries, Japan employs a limited number of zoning categories (12 vs 300K+ in the US).
National control: Zoning in Japan is primarily regulated at the national level. Although cities and municipalities have some freedom to tweak, the national government ultimately approves their plans and has the authority to revamp zoning rules for the entire nation.
In North America, these features could be difficult for policymakers to rally around from a practical perspective. This doesn’t have to change all at once, and instead, can be gradually modified to become more flexible and simpler, typically allowing for increased density and construction. This process is called upzoning. Japan does this very well. Upzoning can yield numerous benefits including:
Increased residential housing supply: In Japan, in all but the most specialized or industrial-heavy zones, residential housing can be built. This paints a picture of cluttered residences existing amongst noisy machine shops and restaurants, but in practice, neighborhoods grow organically in pleasant areas and commerce areas grow in high traffic areas. The point is, that if there NEEDS to be a residence somewhere, it can likely be there, granting an immense amount of freedom.
Affordable housing: Building higher density (than, say, suburbs) optionality directly into zoning codes via upzoning creates more flexibility and creativity for affordable housing projects.
Diverse and vibrant neighborhoods: The freedom granted by Japan's zoning system allows for the creation of diverse neighborhoods that reflect the preferences and needs of individuals. This diversity contributes to the development of vibrant and livable communities that closely resemble the idyllic 15-minute city model being designed into modern and futuristic cities. The goal is to have essential amenities and services within a 15-minute walk. This proximity enhances convenience, reduces dependence on cars, promotes sustainability, and fosters a sense of community. It’s a modern design concept, but again, Japan has been doing it since 1968.
Quicker decision-making and construction: Less complexity in getting a project off the ground.
Economic growth: Increased construction activity resulting from upzoning can stimulate economic growth, generating employment opportunities and boosting local economies.
Efficient land use and sustainability: Upzoning promotes more efficient land use by utilizing existing infrastructure and maximizing available space within urban areas. This approach helps reduce urban sprawl, preserves natural areas, and minimizes the need for long commutes, contributing to a more sustainable environment.
While upzoning offers potential benefits, it is not without challenges:
Resistance from NIMBYs (Not In My Backyard): Implementing upzoning measures may face opposition from NIMBYs who resist increased density in their neighborhoods due to concerns about potential impacts on the area, traffic congestion, parking availability, and strain on infrastructure.
Infrastructure considerations: Upzoning necessitates careful planning to ensure that increased density is accompanied by appropriate infrastructure improvements. Adequate transportation, parking, utilities, and community services must be considered to support the growing population in upzoned areas.
Integration with existing neighborhoods: New developments must be well-integrated into existing neighborhoods to create successful upzoning projects. This requires thoughtful design and planning to ensure compatibility with the surrounding environment and preserve the area's positive elements and livability.
Investment in policy: Upzoning necessitates updated building codes and regulations to ensure that new developments meet safety, sustainability, and quality standards. This includes considerations such as energy efficiency, environmental impact, and resilience to natural disasters.
Upzoning on its own is far from a panacea, but there are lessons here that North America can consider embracing. The restrictive zoning in Toronto, for instance, limits the ability to build high-rise developments over much of the city. This promotes building “out” instead of building “up”,increasing urban sprawl and limiting housing supply, which in turn applies upward pressure on prices and creates less-liveable conditions. Upzoning would alleviate this problem (see Toronto's Missing Middle).
Simplifying and providing flexibility within zoning codes unleashes the power of human ingenuity and creativity but can also lead to unintended strain and stress on local infrastructure. It’s a balancing act. Given the housing challenges that lie ahead (and the likely glut of commercial real estate in major city centers sitting empty) we believe North American policy makers can no longer ignore what is clearly working in other jurisdictions like Japan.
We’ll dive into more of the unique elements of Japan’s housing market in Part II.
From your friends at GroundBreak Ventures