Rethinking the Value of Land in Twenty-First Century Japan
November 12, 2018
As the government’s policymakers set to work on reforms to address the unclaimed-land crisis, the author calls for more sweeping policies to enhance the “utility value” of Japanese land.
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Abandoned land of undetermined ownership has emerged as an issue of mounting concern in Japanese society. How we approach this problem must naturally hinge on our understanding of its causes.
How do we lose track of a plot’s owner? In many cases, the person whose name appears in the real property registry is no longer alive or in possession of the land, yet no one has been registered as the new owner.
The majority of these cases involve land inheritances. (Those who purchase land are naturally conscious of its value and therefore anxious to protect their rights by registering their ownership.) In some cases, registration is delayed owing to an inheritance dispute. These disputes can be serious matters in their own right, but if two or more heirs are actively laying claim to a parcel of land, then in time the dispute is likely to be resolved, and the real property registry will be updated to reflect the actual owner.
But the orphan land that is causing so much concern of late is most often property that the legal heirs have chosen not to register in their own names because the costs of ownership outweigh the benefits. This is particularly common in outlying areas that have experienced rapid depopulation over the past few decades. The longer such land remains unclaimed, the more difficult it becomes to sort out legal ownership. In many cases, the heirs have moved far away. Moreover, with each generation, the heirs multiply, and the perceived value of the property tends to decline even further.
A Brief History of Japan’s Postwar Land Booms
The government is currently in the process of hammering out reforms to prevent the further proliferation of unclaimed land. Thus far, the focus has been on mandatory registration of land inheritances and mechanisms to facilitate abandonment of title. While such measures are certainly important, it could be argued that they address only the symptoms of the problem rather than the underlying cause. In my view, they probably need to be accompanied by public policies aimed at enhancing the value of the land in the eyes of the Japanese people.
The specific design of such policies lies outside my area of expertise. What I can say is that the emphasis needs to be on the utility value—not the exchange value—of land. I suggest we begin by taking a look at the postwar policies that kept the value of land high right up until the collapse of the asset bubble at the end of the 1980s.
In the decades following Japan’s defeat in World War II, government policy was all about laying the foundations for economic recovery and expansion in a country with a growing population and strictly limited land resources. This meant securing the land and infrastructure capable of supporting Japan’s growing manufacturing base (via industrial sites) and population (via housing).
Epitomizing this orientation was the “plan to remodel the Japanese archipelago” adopted by the cabinet of Prime Minister Kakuei Tanaka (July 1972–December 1974). The plan, unveiled with great fanfare in 1972, was an ambitious program of regional public works initiatives and pro-development policies aimed at ensuring adequate access to both industrial and residential land nationwide. Campaigning for the 1974 House of Councillors election, Tanaka toured the country by helicopter, rallying crowds with his gravelly voice and offering up a vision of balanced economic development extending to every corner of the archipelago.
“Japan still has plenty of land,” he insisted. “All we need to do is connect it with bullet trains and expressways.” This was a policy that focused on boosting the utility value of land as a key to meeting the growth challenges facing postwar Japan.
Unfortunately, the policy had unintended consequences. Its result was to shift the focus to the exchange value of land, triggering a real estate bubble. Land prices took on a life of their own, independent of actual development plans. Real estate millionaires were born overnight. The result was a situation in which land was prized not so much for its value as a site for housing or industry as for its ever-rising value as an object of speculative investment. Judicial scriveners recall the period prior to the “oil shock” of 1973 as a time when they could scarcely keep up with the barrage of requests for the filing of land-registration applications. Scam artists also profited from the fever, peddling bits of wilderness that today feature prominently in Japan’s unclaimed-land crisis.
The real estate frenzy subsided as the oil crisis put the brakes on high-paced economic growth. But the embers of rampant speculation remained alive, fed by the myth of ever-rising land values, and in the second half of the 1980s they burst into flame. This time the bubble was fueled not by a single ambitious public investment policy like Tanaka’s plan but by a combination of reforms, such as the relaxation of regulations on building height and density, designed to enhance the utility value of land in Japan’s urban centers.
Having begun my career as a financial reporter in 1983, I observed the real estate frenzy of the 1980s “bubble economy” at close hand. I was often called on to report on the inheritance tax and its rapidly growing impact on individuals who inherited land in the Tokyo, Osaka, and Nagoya metropolitan areas, where real estate values were soaring. (Indeed, this is how I came to specialize in tax and inheritance issues.) However, in those days I never came across any instances of nonregistration that were not tied to inheritance disputes. In retrospect, it seems likely that the problem was already festering by this time, but it was not something people were talking or writing about.
Land Policies in the Age of Falling Values
Why did government policies designed first and foremost to enhance land’s utility value have such a disproportionate impact on its exchange value? Some of the blame doubtless lies with the aforementioned mystique that the Japanese have long attached to land as a scarce and precious asset whose value never falls. But if this is indeed such a deeply rooted article of faith, might not vigorous policies to pump utility value into land reverse the current long-term trend? After all, prime real estate in Tokyo is more expensive now than it was at the height of the bubble. If this trend were to spread outward to the regions, land would again become an attractive investment. That in itself might provide the incentive for land heirs to acknowledge ownership.
However, this scenario seems highly unlikely. The conditions simply do not exist for sustained increases in the exchange value of Japanese land. Our society is aging and shrinking. The population peaked at 128 million in 2008 and is projected to fall below 90 million by the end of this century. Manufacturing industries have moved a good portion of their production capacity overseas. The supply of housing exceeds demand, and abandoned homes are popping up all over. Not even land can sustain its mystique amid such conditions. A concerted drive to enhance utility value through government policy is thus unlikely to boost exchange values substantially over the long term, though it could fuel cyclic increases.
In the end, we may have to change the way we think about land and its value. Ownership of an asset confers exclusive rights over the asset’s use, economic benefits, and disposal. Landowners traditionally exercise their right to a property’s use and economic benefits by living or conducting business there. Sale has long been the dominant means of disposal. Japan’s postwar policies and attitudes put the focus on land as a disposable asset, fueling inflation of exchange values.
However, it will be no easy task to shift the focus back to land’s economic benefits, since those aspects have become increasingly suspect as well. Of course, as long as human beings need land to live and function, some core utility value will always remain. But in the absence of some larger vision for utilization, the rights attached to land ownership will lose their meaning, and the problem of unclaimed land could escalate unchecked.
What kinds of policies are needed to enhance the utility value of land? Some will doubtless shrug and say that such issues are best left to specialists. But it seems to me that this is too important a matter leave in the hands of “experts” alone. National land policy should reflect the nation’s collective vision for how we wish to live in relation to the land. That is something each of us needs to think seriously about.
As I explained at the outset, the superficial cause of the unclaimed-land crisis is the failure to update the real property registry to reflect land inheritances. To address this phase of the problem, we clearly need to make registration of inheritances mandatory while providing options for abandoning title (not merely waiving inheritance). Yet even such systemic changes—which may have unintended consequences unless carefully designed—may not put an end to the problem. This is why I believe we must reassess the relationship between people and the land as the fundamental source of the problem.