How an average family in Tokyo can afford a new home

[ChargerCarl]

• Video Link

[Shawn]

Great video, I will happily dig into the rest of his series when I have some time.

A few minor quibbles though about Edogawa-ku and the other wards on the east side that were glossed over or not mentioned (these directly impact the value of new houses here and can go a long way towards explaining that $300k price tag):

- Edogawa-ku is right upwind from two of the largest petrochemical refinery complexes in Asia, and prevailing winds off the Bay never let you forget this. Think Jersey Turnpike in Orange or Elizabeth, but constant.

- Large tracts of Edogawa-ku and the other eastern wards are landfill. When the Big One hits Kanto, lots of this land will liquefy in seconds. This absolutely gets factored into pricing.

- 60 sq meter lots of land - just the land - are generally worth around 250k. That leaves only 50k for the house materials, reinforced foundation and all; the quality of the construction leaves a lot to be desired. Particularly when it comes to insulation.

One other point to consider re: that nice $850 a month mortgage - the standard term in Japan is 35 years. Most Americans do 20 years. So the affordability is largely tied to an understanding that as a home owner, you're never moving again. What you build is where you are stuck, for the rest of your life. This concept is acceptable in Japan, but isn't all that compatible with American working culture (moving around for jobs, for example, which is still rare in Japan).

Finally of course, unless you build in certain select areas of Tokyo, you don't build a house in Japan with the hopes of reselling later and living off your gains / downsizing. Like the video said, building a home in Edogawa-ku is taking on a depreciating asset. Americans would have to radically shift their understanding of home ownership were this model to take root in the US.

We built a home in one of the Tokyo wards which has consistently seen housing appreciation, but more importantly, we built within a 10 minute's walk of three universities and what is considered the best public elementary school in the 23 Wards. We don't plan on reselling for a gain; we plan on renting when we leave Japan. Our monthly mortgage is about a grand less than the average monthly rental rates for a house our size within walking distance of Tokyo University.

[Buckman821]

Wow. Fascinating video - thanks for sharing.

I must admit that I find this housing model to be superior to the US model in basically all respects. However, I would have a hard time parting with my historic preservation desires.

[Gordo]

Originally Posted by Shawn

... Most Americans do 20 years. ...

Wait, what? 20 year mortgages are not common in the US - the overwhelming majority are 30 years, and the second most common is 15.

[James Bond Agent 007]

The housing prices there sound similar to Seattle.

[Shawn]

Originally Posted by Gordo

Wait, what? 20 year mortgages are not common in the US - the overwhelming majority are 30 years, and the second most common is 15.

Really? Learn something new every day - my references were my brother and parents, who both had / have 20 year fixed with 20% down.

Granted, my parents signed in 1978 and my brother got his in place in 2006, prior to the meltdown.

[Jonesy55]

Originally Posted by Shawn

One other point to consider re: that nice $850 a month mortgage - the standard term in Japan is 35 years. Most Americans do 20 years. So the affordability is largely tied to an understanding that as a home owner, you're never moving again. What you build is where you are stuck, for the rest of your life.

I don't know how mortgages work in Japan or the US but they don't work like this here in the UK. Most common initial mortgage term is 25 years but that doesn't mean you a stuck in that home for 25 years as mortgages are usually 'portable' meaning you can move the loan security from one home to another when you move as long as the new home meets the valuation criteria etc.

[Crawford]

Originally Posted by Shawn

Really? Learn something new every day - my references were my brother and parents, who both had / have 20 year fixed with 20% down.

Granted, my parents signed in 1978 and my brother got his in place in 2006, prior to the meltdown.

Yeah, 30 years is the norm. And huge proportion of homeowners put less than 20% down. I think the national average is like 14-15% down.

I'm inherently conservative and did a 15 year, with around 30% down, but I'm fortunate and have atypical circumstances for first time buyer.

[Shawn]

Originally Posted by Jonesy55

I don't know how mortgages work in Japan or the US but they don't work like this here in the UK. Most common initial mortgage term is 25 years but that doesn't mean you a stuck in that home for 25 years as mortgages are usually 'portable' meaning you can move the loan security from one home to another when you move as long as the new home meets the valuation criteria etc.

I'll look into this, but I don't believe that's possible in Japan.

And by "stuck", all I meant was that due to the diminishing returns on about 90% of the properties in the country, as a home owner you cannot expect any sort of appreciation on your investment. You generally can't sell a house here for more than what you paid for. The house itself has no tangible value; it's the land alone that retains (or slightly gains) in value.

[Shawn]

Originally Posted by Crawford

Yeah, 30 years is the norm. And huge proportion of homeowners put less than 20% down. I think the national average is like 14-15% down.

I'm inherently conservative and did a 15 year, with around 30% down, but I'm fortunate and have atypical circumstances for first time buyer.

I had atypical circumstances too: our contractor is my wife's uncle, and we somehow got a developer's rate instead of a typical commercial rate, by going through his preferred bank partner. I have permanent resident status, which immediately knocks a whole point off the annual, and we only put own 10%. That might seem tiny, but the typical down payment here is anywhere between 1% and 5%.

I'm paying 0.65% annually. That's . . . kind of nuts.

[10023]

This isn't so different from the plywood McMansions built in American suburbia. They're smaller, but it's the same sort of disposable housing at low cost.

[Crawford]

Originally Posted by 10023

This isn't so different from the plywood McMansions built in American suburbia. They're smaller, but it's the same sort of disposable housing at low cost.

Though crappy McMansions usually appreciate, albiet very slowly.

No one is buying a McMansion in Ohio or Texas with the expectation that it will be worth less 10 years from now.

[10023]

Originally Posted by Crawford

Though crappy McMansions usually appreciate, albiet very slowly.

No one is buying a McMansion in Ohio or Texas with the expectation that it will be worth less 10 years from now.

Fair enough. Though in many cases that expectation is not met.

[Buckman821]

Originally Posted by 10023

This isn't so different from the plywood McMansions built in American suburbia. They're smaller, but it's the same sort of disposable housing at low cost.

I think the most important difference is that if the value of those lots justifies it in 30 years, you might tear it down and build 4 houses on the same lot.

This might not be all that significant in Ohio (because there's probably no demand) but it would be of huge consequence in places like the Bay Area.

If 70% of the value of your house is in the land. You don't really need that much growth over your ownership period to cover your costs.

[JManc]

Originally Posted by 10023

Fair enough. Though in many cases that expectation is not met.

Maybe not in OH but that's certainly been the case here in TX. Our house has gone up about $10,000 in value just in the past year alone.

[Leo the Dog]

Originally Posted by Buckman821

I think the most important difference is that if the value of those lots justifies it in 30 years, you might tear it down and build 4 houses on the same lot.

Easier said than done. Usually isn't possible with restrictive local zoning laws and HOAs.

[Buckman821]

Originally Posted by Leo the Dog

Easier said than done. Usually isn't possible with restrictive local zoning laws and HOAs.

Ya, that's my point. This appears to be doable in Japan and almost always undoable in the US and Canada (with a few rare exceptions).

[initiald]

My most interesting take-aways from this, other than the homes depreciating:

1. Zoning rules are set at the national level with 12 zoning types.
   
2. Each tier allows for residential, and most residential allows for small business and shops.
   
3. There are little restrictions that prevent the owner of a lot sub-dividing it and building more units.

[ChargerCarl]

Originally Posted by initiald

My most interesting take-aways from this, other than the homes depreciating:

1. Zoning rules are set at the national level with 12 zoning types.
   
2. Each tier allows for residential, and most residential allows for small business and shops.
   
3. There are little restrictions that prevent the owner of a lot sub-dividing it and building more units.

Also residential allowed in all 12 zones, with each subsequent zone allowing another building type/use that can be used in all the following tiers.

That and very little density restrictions is what makes Japanese cities the most walkable and transit friendly in the world.

[Leo the Dog]

Originally Posted by Buckman821

Ya, that's my point. This appears to be doable in Japan and almost always undoable in the US and Canada (with a few rare exceptions).

Ah ok, gotcha. I thought you were talking about McMansions in the suburbs.