Japan Rental Housing

To support the contention that Japanese rental housing will remain a promising sector, this report assesses the market from the perspectives of demographics, household income, housing market and consumer trends, and discusses the current state and attractiveness of the Japanese residential real estate investment sector.

While the Japanese population is ageing and declining, strong demand for rental housing in the major metropolitan areas can still be anticipated:

Location: concentration of the population in urban areas

Since peaking in 2010, the Japanese population has been declining, with the latest estimates suggesting a fall of 20 million by 2050. At the same time, however, the labour force is expanding, and the population continues to migrate to urban areas with plentiful job opportunities. While 30% of the population is currently concentrated in the 21 largest cities, this share is expected to rise further. The 23 wards of central Tokyo are expected to witness a population increase of 5% between 2015 and 2030. As a result, long-term demand for rental housing can be anticipated for central Tokyo and the other major centers of population concentration. However, housing stock remains insufficient to accommodate demand in these urban areas.

Target demographic (1): dual-income households

The rise in the number of Japanese women in the workforce has meant an increase in dual-income households. With relatively high household income, dual-income households can afford high rents. Such households also tend to prioritise factors such as access to workplaces and convenience for child-raising, making them more likely to prefer urban locations. However, some 60 to 70% of rental apartment stock in major cities consists of smaller studio or one-bedroom apartments. While demand is strong for these smaller apartments due to the prevalence of young singles in metropolitan areas, this leaves an insufficient number of family-type units for dual-income households seeking to rent their home.

Target demographic (2): single senior citizens

Recent statistical projections indicate that by 2040, one in five Japanese households will consist of single senior citizens. At the same time, the ongoing overhaul of legal frameworks allowing for the employment of senior citizens since mid-2010 has resulted in higher workforce participation rates among the over-60s, with significant room to increase these rates among the over-65s. Demand can be anticipated over the long term for properties targeting this demographic. Locations in close proximity to train stations with good access to workplaces and robust lifestyle infrastructure are likely to be preferred. Elsewhere, so-called “share houses”, until now predominantly occupied by younger singles, may also become an option for single senior citizens.

Specifications: demand for high quality and environmentally friendly property

The results of CBRE’s Global Consumer Survey indicate that, following the pandemic, the trend for consumers to prioritise high-quality housing has strengthened. In concrete terms, an increasing number of people are looking for better quality property, bigger homes, and better residential environments in their future domiciles. The same survey also indicates a rising commitment to issues of sustainability when selecting a residence, particularly among high-income earners and senior citizens. Should senior citizens and dual-income households with significant economic security continue to increase in number, demand for high-spec housing is also likely to increase.

Interest rate environment: demand for rental housing set to increase in a rising interest rate environment

An analysis of recent trends in the Japanese residential market shows that prices are on the rise, with condominium prices in particular spiking sharply. Furthermore, although interest rates remain low for the time being, any hikes in the future will lead to higher loan burdens for homeowners. While Japanese household economies remain largely healthy with ample ability to repay loan debts, any drop in housing affordability and greater home loan burdens would certainly lead to an increase in the number of households selecting rental options.