What is the secret to Tokyo’s affordable housing?

Is the secret of Tokyo being affordable that Japan lets its cities be messy?

Last year Tokyo caused a stir in New Zealand housing affordability circles when Michael Reddell -the economist who frequently advocates for large cuts in New Zealand’s immigration rate -wrote an article speculating that Tokyo could be an example of a city which undertook successful urban planning reforms to achieve affordable housing. That Tokyo could be the rare example of a once expensive city that successfully managed the difficult political process of removing planning restrictions in order to achieve affordable housing.

Learning the secrets of Tokyo’s affordable housing has obvious benefits for New Zealand and Auckland in particular, given the difficulty we are having in providing affordable homes for New Zealanders.

Michael was surprised to find that Japan’s stagnant/declining population is not true for Tokyo, so is not an explanation for Tokyo’s affordable housing. In his article Michael described Japan’s property bubble in the 1980s and based on a Financial Time’s article, the contention was that removing planning restrictions in the 1990s -including for intensification, led to housing becoming more affordable. Unfortunately, the exact nature of these planning changes and how a political consensus was achieved was not described and these pieces of the story have been hard to find. So the full Tokyo affordable housing story is a secret –although the freedom to intensify does seem to be part of the story.

Removing regulatory constraints on intensification is consistent with advice from my favourite planning theorist -Alain Bertaud. He visited New Zealand in 2014 and wrote the following about how to provide affordable housing, given Auckland’s constrained land supply.

I agree with both of these statements and have gone to some effort to advocate for them. In particular, I like to advocate for more of the second option –removing restrictions on building within the city, in places where demand is high.

There are plenty of people demanding peripheral growth boundaries be removed –mainly they argue for reasons related to the ability to access lower priced land, which sends an urban land price reduction signal through the entire city market, thus stimulating the building of more affordable housing. David Seymour for example appears to be advocating for this -although in a very provocative manner -by advocating for house building in a set aside wilderness area -the Waitakere Ranges to the west of Auckland. Of note, David Seymour as an inner city MP is silent on what regulatory constraints should be removed to support greater housing intensification in places where demand is high i.e. inner city Auckland.

A lot of people advocating for the removal of peripheral growth boundaries do not seem to have any motivation to remove other housing supply restrictions. I do, I feel that it is important to advocate for a mix of restrictions to be relaxed –in both the up and out directions. As this advice allows more housing to be built within a city, which gives more choices, to more people, over what types of housing (terraces, apartments etc)and types of communities or locations within the city that people can live in. In other words, it allows for housing supply to better respond to the different types of housing demand.

The recently agreed to Auckland Unitary Plan will allow more intensification to occur. Which is important, as Auckland is the city in New Zealand with the greatest housing supply imbalance. I worry though that the Unitary Plan is weighted too much in the direction of high-rise apartments in a few locations and does not allow enough freedom for other types of housing intensification, such as, terrace housing.

It is my contention we should give much more freedom for small scale housing intensification in a much broader area of the city. I believe we should relax the rigid thinking/control of always directing where development should occur. I do not see the harm of leaving more intensification housing supply decisions -what housing type, what locations -to people on the ground to make. I believe these decision makers -the many, many thousands of Auckland property owners would naturally respond to the various types of housing demand. I think this sort of natural, organic process in most cases would have good outcomes and would help us to meet our various housing needs.

Incremental and organic building within a city was the logic behind a proposal I made last year to improve housing supply. I called it -reciprocal intensification property rights. This proposal is designed to facilitate co-operation between neighbours to allow more intensification in their adjoining properties. I published a longer version and a more concise version. The economist Eric Crampton, wrote a short entry on his blog-site about the concept saying that it formalises neighbours’ Coasean bargains. Which basically means that reciprocal property rights would address the sequencing problems that currently discourage neighbours using the RMA to achieve this sort of intensification. My hope is that reciprocal intensification will be a step towards adding an incremental, freer, bottom-up process to city-building in New Zealand.

It has been suggested that a hidden fuel powering Tokyo’s economy is the freedom given to Japanese city dwellers to incrementally upgrade ‘slums’ around government provided infrastructures, in an article titled -When Tokyo was a Slum (H/T Matt Robare on Facebook’s “Market Urbanism” group).

Japan’s city-building freedom is not only important for supplying competitive and affordable housing -the argument is this freedom facilitates a diverse, broad eco-system of small businesses too. Given the need for New Zealand to diversify its economy, adopting similar city building practices may be of benefit.

Unfortunately, proving the contention/theory that removing house building restrictions is a feasible way of achieving affordable housing for places that currently are unaffordable is not easy. Examples of this sort of successful housing reform are hard to find. In Tokyo’s case the story is only half told.

Recently a Canadian journalist made a video about housing affordability in Tokyo with some good information about Japanese planning rules and the video also included some comparative housing and land cost data. The video shows the average new Tokyo home can be bought for $300,000US or $414,000NZ -which is significantly cheaper than a new home would cost in New Zealand, especially Auckland. Usefully it shows video of what these homes and neighbourhoods actually look like. The video as a whole makes for interesting watching and fills out some of the Tokyo housing affordability story.

It indicates that intensification can be part of successful housing reforms.

Some may argue these sort of informal city building processes may be appropriate for high density Asian cities, but would not work for suburban New Zealand. The evidence indicates this is not true. Houston, a low density affordable US city has also relaxed rules on housing intensification for its inner city suburbs (an area larger than Auckland’s isthmus), which has resulted in significant increases in affordable inner city housing. This can be seen in the before and after pictures of Houston from two articles which questioned whether Washington DC should allow widespread low-rise intensification on more affordable land like Houston allows, as opposed to what they are currently doing, by relying on central city high-rise apartment building.

A similar question of whether to give more freedom to build low-rise intensification over a wide-spread area could be asked about Auckland. Under the Unitary Plan, it is estimated that nine times as many apartment dwellings will be commercially viable to build compared to terrace housing (P.17).

The degree in which a city is free to build up and out are collective decisions i.e political decisions. It is my contention this freedom has a significant influence on housing affordability. Meaning if this is correct, the degree that we collectively tolerate unaffordable housing and all its associated ills -homelessness, overcrowding and rising wealth inequality -is also a collective or political decision.

What is the readers opinion on the degree of freedom we need to grant New Zealand cities to build up or out?” -originally from a post of Brandon Harre.

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