Investors from all over the world invest in Japanese real estate for a myriad of reasons. The most common ones are its high cap rates and low risk. Average returns on investment (ROIs) include 5.5% (downtown Tokyo) and 7% or more in Niseko, Hokkaidō and elsewhere. Higher-return properties also exist (usually with higher risk, of course). Despite this, there’s one thing that really scares potential investors. They’re worried that they’ll invest tens/hundreds of thousands, even millions, and then, earlier than expected….they must tear down the building because it’s no longer livable! Various overseas news outlets fan the flames. The Guardian and The Economist, etc. publish articles about how in Japan, a house only lasts for 30 years. This understandably spooks would-be investors. This leads us to a (literally, in some cases) million-dollar question: How long do Japanese buildings actually last?
Other questions on investors’ minds include:
- If Japanese buildings last longer than we initially thought, then how did these rumors and stereotypes get started?
- Is there a difference in how much care Japanese take of their buildings versus people in other countries? If so, could one extend the life of his/her building?
- For comparison, how long do buildings in the US and the UK last?
How Long Does The Japanese Government Claim Buildings Last?
The Japanese government claims a wooden house lasts 30 years. The Japan Times echoes this claim, and the Western media picks it up from there. Therefore, first, we should investigate the Japanese government’s claims.
The Japanese government has various “Ministries”—MLIT, or the Ministry of Land, Infrastructure, Transport and Tourism is one of them. It claims that wooden houses lasts for 27~30 years. It also claims that reinforced-concrete buildings last 37 years. 37~40 years is another common numeric range for reinforced-concrete buildings. Some other numbers that the government commonly throws around pertain to real estate depreciation. These numbers are about how much of a tax deduction you can claim due to the building’s decreasing tax value. For example, according to the real estate depreciation numbers, a wooden house has a lifespan 22 years. A brick building is 38 years. Finally, a reinforced-concrete building is 47 years.
For an example of real estate depreciation using the numbers above, suppose you buy a house with a taxable value of ¥22 million. You then rent it out to tenants for 22 years, which is a “business” in the eyes of the government. You can then write off ¥1 million on your taxes as “depreciation” each year for 22 years.
The government quotes 22, 38, and 47 years for wooden, brick, and reinforced-concrete buildings, respectively. However, do these numbers accurately reflect the actual lifespans of buildings, or just the government’s estimates? There is abundant evidence that these are all underestimates.
The History Of Buildings’ Short Estimated Lifespans In Japan
For much of Japanese history, builders built buildings to last. Many kominka (古民家, literally “old[-style] Japanese house[s]”) are hundreds of years old. Kiyomizudera, a temple in Kyoto, is over 1,200 years old (the oldest, non-reconstructed wooden building in the world). There was a time when, when building a building, people expected it to last for a long, long time.
The trend of underestimating a building’s lifespan probably started around WW2. Allied bombing destroyed many buildings; putting a roof over the population’s head became a major priority; quality, secondary. The government also made several earthquake code revisions in the postwar era. The first major one was in 1971. Three revisions followed: 1981 (major), 2000 (minor), and 2001 (minor). Because building codes change frequently, the government wants to tear buildings down as soon as possible, often before their time. The construction industry is more than happy to oblige. It’s almost a conspiracy. The government and construction industry demolish and rebuild buildings to keep the economy going. The Ministry of Land created a 30-year “expiration date” arbitrarily. Manufacturers of prefab homes, such as Daiwa, Sekisui, etc. profit from building three homes during the average’s Japanese person’s lifetime. However, one could argue that this “use by date” is actually a myth.
The Effect Of A Building’s Age On Its Market Value
Important to note is that a building’s market price and taxable value are two different things. “Market price” is what somebody will be happy to pay to buy the property. “Taxable value” is the assessed value that the government assigns to the land and the property, upon which annual ownership taxes will be based moving forward. These are two separate tax bills. Ownership taxes will reduce over time for the physical property structure itself as it gets older and closer to being ‘unlivable’. Ownership taxes for the land will remain constant and perhaps even increase nominally over time relative to inflation. If you are buying/selling a residential property – i.e a single apartment, or a single house that is empty and not producing income, then pricing will be determined by a number of factors: property age, property construction type, property location, comparable properties on the market at that time etc. If you are buying/selling an investment property (i.e something which produces yield for its owner) then the market price is going to be a function of the % yield on offer by the investment. For example, any investor will know that if his investment property is priced as such that the annual income from the property constitutes a 10% return on investment, then it will definitely not be ‘for sale’ for very long. In short, there is no way that a piece of real estate which produces income could ever be worthless- no matter how many years in it is on the statutory depreciation schedule created by the Japanese tax office.
There is an aging/shrinking population. This means less construction. Wages have stagnated, so younger people also have less money to pay for a new house every 30 years. Quoting Kenichi Ishida (Sekisui House): “Nowadays young people don’t have much money, so they won’t hesitate to buy older buildings”. Noboru Kaihō at Daiwa House explains “For the first time, Japanese people are beginning to appreciate living in older homes”. Noboru Kaihō is a public information officer at Daiwa House. Many industry leaders agree: there is an upward trend; home buyers are starting to value second-hand homes more.
The well-known company “Muji” is cashing in on this. They renovate old buildings. They take the excessive finishes and replace them with clean white ones. They furnish the units with spare wood furnishings. The result is that the properties look newer and interest in them is high.
How Long Do Buildings Actually Last, And How Can I Make My Building Last That Long?
Wooden Buildings (E.g. Wooden Houses)
Of course, a well-built kominka of old could last for hundreds of years. However, let’s be honest, today’s houses are not built to the same structural standard as a kominka. The consensus is that, if properly cared for, a modern house has a lifespan of ~65 years. A study by the Faculty of Science and Engineering at Waseda University found it to be 64 years. This assumes that the owner takes proper care of it. If the owner doesn’t, then the life expectancy is closer to the government numbers.
The thing is, most homeowners in Japan don’t take proper care of their buildings. They budget very little money to maintenance and repairs. Japan’s 69,785 centenarians are a testament to how well Japanese take care of themselves. However, when it comes to buildings, the opposite is true.
One example of the type of care an owner should give his/her house to make it last is window caulking. Window caulking only lasts 7~10 years. When the caulking is gone, then moisture gets in through leaks in the caulk. This results in rot. Which creature loves rotten wood? That dreaded member of the cockroach family, the termite. Therefore, if you really want your wooden house to last, make sure to re-caulk the windows. This and many other types of preventive maintenance, if carried out when necessary, can extend the house’s life expectancy.
Hack To Cut Repair Costs
A building’s shape can significantly influence repair costs. The reason for this is that about half of the cost of repairs is in the scaffolding. If the building has an odd shape or a large perimeter, it will require more scaffolding.
For example, imagine two houses. Building 1 is 10×10 meters. Building 2 is 5×20 square meters (same floorspace). Which will have more expensive scaffolding?
10 + 10 + 10 + 10 = a 40 meter perimeter
5 + 20 + 5 + 20 = a 50 meter perimeter
Building 2 will require 25% more scaffolding than Building 1. This will result in repairs being approximately 12.5% more expensive (25 × ½ = 12.5).
Survivor Bias In Reverse
The government expects such a building to last 30-something or 40-something years (the tax depreciation tables say 47). However, they based this number on demolished buildings. The ones that were still standing didn’t enter into the statistics.
Imagine that this year (2020), a developer builds five new buildings: Building 1, Building 2, Building 3, Building 4, and Building 5. In 2050, for whatever reason (perhaps not even related to livability), they demolish Buildings 2 and 4. They were both 30 years old, so some official writes down “30 years” and puts it into his report. This becomes the “average lifespan of a building”. Perhaps, after he writes his report, Building 1 stands for another 50 years. Building 3 stands for another 40. Building 5 stands for another 60. In that case, the average was actually 60 years in the end. However, based on his statistics after the demolition of Buildings 2 and 4, it looks like only 30 years. This extremely riveting story is fiction, but this is basically what happens nationwide in Japan when they calculate the statistics.
A Developer Comes Along And Wants To Build A Bigger, Better Building…
A property developer often has concrete buildings demolished before their time to build new, better buildings. Urbanization continues nationwide and investors love real estate investments. Therefore, a property developer might take one look at a perfectly livable 30-year-old building and declare “Tear it down!” That is, after paying all the owners a handsome sum, of course. The official statistics reflect such situations, which are actually financial windfalls for the owners!
A Japanese reinforced-concrete building actually has a lifespan of at least 68 years, and possibly as much as 120-150. That said, when you have a perfectly livable 30-year-old building and Mr. Moneybags comes along….offering you significantly more than your building is worth so he can build a new skyscraper there… What do you do? This has happened time and again, and influenced the statistics.
For Comparison, How Long Do Buildings Last In The US and UK?
In the US, the average building lasts 66.6 years. The difference between this and the 64~65 years that a wooden Japanese house should last, if the owner cares for it properly, is negligible. A building in the UK lasts 80.6 years on average. Although longer than in the US, this is still within the realm of possibility for a Japanese reinforced-concrete building. Right now, in Minato Ward, near our offices, there are apartment blocks built in 1930, still standing, still livable, still making money for their owners. They have beaten the UK averages by about a decade.
How Long Do Japanese Buildings Last? Conclusion
There is little doubt that in Japan, “They don’t build ‘em like they used to”. Gone are the days of kominka built to last centuries. However, sensational headlines about 30-year lifespans aren’t really telling the whole story. Even a postwar wooden house should last 65 years on average with proper maintenance and repairs. A concrete building built this year could easily still be standing in the year 2100. The reason for the 30-year rumor is that statistics don’t take into account buildings that are still standing. They don’t take into account the reason for demolition, such as to build a bigger, better building. They don’t take into account that Japanese owners maintain and repair their buildings far less than American or British owners. When controlling for those factors, Japanese buildings last much, much longer than the western media would have us believe.