Why do consumers in Japan prefer new homes?
It is well known that Japanese consumers prefer new buildings when buying their own homes. When comparing the share of the pre-owned home market in the overall housing market with that of the United States and Europe, Japan's second-hand housing market is small. Despite the growing housing stock and a significant share of empty homes, a large number of new homes are built each year.What is the cause for the preference for new homes? Housing policies of the past decades are believed to have contributed to this attitude. Post-war Japan experienced a housing shortage in the 1960s, a period of rapid economic growth. Housing policies during this period were aimed at facilitating the quick provision of a large quantity of housing units at the expense of quality and durability. As a consequence, an average home in Japan fully depreciates within 30 years. This also encouraged Japan’s scrap and build approach of demolishing and rebuilding old houses rather than reusing and renovating them. Until recently, Japan’s stance on housing had not caught up with the reality of its population decline and massive and deteriorating housing stock.
Recent developments in the used home market
These circumstances and the absence of a reliable market for home inspections, maintenance, and price evaluation resulted in consumer uncertainty about used homes. Concerns about quality and high renovation costs were the main reasons for not buying a second-hand home among people who built new homes in the fiscal year 2021. Meanwhile, the majority of those who bought a pre-owned home did so because it was more affordable.In recent years, a surge in construction material prices and labor costs, inflation, and the weak yen that attracted foreign investors have led to rising home prices in Japan. In addition, the government has shifted its stance on housing towards reutilizing the existing stock, incentivizing the maintenance and renovation of existing homes, and revitalizing the used home market. This could lead to more consumers opting for second-hand homes in the future. The sales index for used homes, which measures the development of the number of ownership transfers of single-family homes and condominiums, increased to a decade high in 2022. Likewise, the prices for used condominiums in metropolises like Tokyo and Osaka rose significantly.
