Tokyo’s unique path to density and affordability

Tokyo: Building “Up” in the Right Places, and keeping it affordable

One of my essays deals with the false assumption that urban “intensification” under Plans and rezonings will enable housing affordability as a substitute for the way that suburban sprawl enables it. Tokyo and Japan generally are exceptions but it is essential to understand how they achieve this. It is brilliant, yet no-one is advocating it as the solution for the wicked problems that beset housing markets and transit-oriented planning everywhere else. Problem is, even the Japanese don’t understand how good their system is, they just take it for granted.

Japanese cities grew since Victorian times, with railway enterprises in competition to each other, buying sites on what was greenfields, and connecting them with subways or surface transit. And they retained ownership of these sites right to the present day, developing and redeveloping them in such a way as to attract tenants, and trip-attractor tenants, hence maximising their own “ridership”. You could look at each enterprise’s system as a “master planned community” in a web form connected by the transit system; all of these competing with each other to offer value-for-money floor space and local amenity. And they succeed in gaining enough of the combination of “tenants and ridership” that they make a profit overall, on property rents plus transit fares, without public subsidies.

In some cases, the routes intersect and this is where the most intense focused development in the entire city is to be found.

This competition between the “integrated enterprises” in “Transit and landlording”, provides the competitive tension in the entire urban land market that suppresses prices, as a substitute for the way ex-fringe sprawl suppresses prices in the US cities that are the only ones in the world still with median multiples of around 3. Nevertheless, Japan did have one famous big, long bubble and bust in the second half of the 20th century (but if they ran their urban property markets like we do, they would have had much more volatility than that). It also “helps” that their population is collapsing and their culture does not bother to consume larger house-lot space even when the land is cheap enough. They are abandoning exurban locations as their population shrinks, the population “contracting” into the cities.

The status quo in most of the rest of the world, is that the transit system is a publicly owned (or publicly guaranteed) monopoly, heavily subsidised — and the sites served by it are in “private investor” ownership. Something else I have written a lot about, is the way that these owners incentives do not align with the intentions of urban planners and transport planners. The more that the local economy’s land supply is rationed, and the more “public investments” are poured into Transit and other “compact city” amenities, the greater the capital gains to site owners, and the less they care about actual redevelopment. They maximize profits by “holding” — and accumulating — sites in which capital gains are guaranteed.

I recommend my essay on Medium, “Rocket Scientists Haven’t Forgotten About Gravity, so Why Have Urban Planners Forgotten About Land Rent”?

Besides the impact on housing affordability, the Japanese system also guarantees density “in the right places” — where people can use transit. A good technical term for this is “articulated density”. Our status quo has the opposite effect when “compact city” plans ration the supply of land by preventing ex-fringe development; redevelopment tends to be in random, inefficient patterns because developers have to pay so much for the sites at efficient locations (the site vendors want the entire potential capital gain stream compensated upfront), that it is too risky.