Japan rental housing: Investment fundamentals remain strong despite country’s aging population Part 2

This report is the second in a three-part series analyzing the factors driving rental housing demand despite Japan’s aging and declining population.
 
#2　Housing conditions and foreign population in Japan
　　03 Housing conditions
　　04 Foreign population and housing

Summary

• Japan’s nationwide homeownership rate is 60.9%, below that of neighboring advanced nations. In many of Japan’s major cities, this figure is even further below the nationwide average, remaining at just under 50% in Tokyo 23 wards, Osaka, and Fukuoka. The homeownership rate is also on a downward trend in most of these cities; a trend due to the increasing number of young single-person households resulting from the continued inflow of students and the working generation into urban areas. Other contributing factors to this phenomenon include the increasing number of households being unable to purchase homes due to the recent spike in urban property prices. As interest rate hikes become more prominent, the hurdles for home ownership have risen further, suggesting that more households are selecting rental housing.

• A comparison of the growth rates in the number of households versus housing units suggests that housing supply in urban areas is lagging household growth. Additionally, vacancy rates in rental accommodation in cities within Greater Tokyo and Fukuoka remain low compared to other regions. Among occupied rental housing, small studio-type units can be estimated to account for approximately 30% of the total, meaning that the majority of units are small. Consequently, the supply of high-quality rental housing with spacious layouts appears insufficient to meet the needs of dual-income family households and active seniors seeking better living environments.

• Foreign inflows to Japan rose during the three consecutive years starting in 2022, reaching 660,000 in 2024. Approximately 40% of these individuals moved into the major 21 cities, with a particularly high concentration in cities hosting universities and corporations. About 60% of foreign residents in Japan are aged 15 to 39. Since many arrive for periods of several years for education or skill acquisition, their renter rate is high, exceeding 50%. Even under the Takaichi administration that advocates “realizing an orderly, multicultural society,” Japan’s general policy to attract more foreign talent should remain intact on the back of the serious labor shortage. With more skilled foreign individuals expected to stay in Japan on a long-term basis, rental housing demand from foreign resident households should continue to expand.