ECONOMY

Old Apartment: No Exit

Odaki Kazuhiko argues the need for a clear strategy for reconstruction of Japan’s increasingly old apartment buildings.

In Japan, detached houses were popular for many years, but gradually more and more people have begun to live in apartments. Stocks of existing apartments are increasing, especially in Tokyo and Osaka, and it is estimated that there were more than 6.4 million apartments in 2017. With an increase in the number of stocks of used apartments, the average number of years since used apartments were constructed is also increasing year by year. The average number of years since used apartments were constructed increased from 12.3 in 1997 to 22.4 in 2017, an increase of ten years in the course of twenty years.

Many apartment buildings were constructed in a lot of countries after World War II. More of these buildings now need to be reconstructed in Japan compared with other countries in terms of the construction standards and level of earthquake-proof construction when they were constructed. To date, however, the reconstruction of apartment buildings has hardly been achieved in Japan. Only 260 such buildings have been successfully reconstructed or have had reconstruction work undertaken. This shows that currently, reconstruction or demolition of apartment buildings is the exception rather than the rule. In comparison with many reconstructed commercial buildings, which are considered to last longer than apartment buildings, it is clear that there are problems with the “exit” of apartment buildings.

In fact, a significant number of apartment buildings that were successfully reconstructed despite their dilapidated state were those meeting the following fortunate criteria. First, these buildings were located in areas where land prices were high and the prices of newly constructed apartments were also high. In addition, these apartment buildings were below the legal maximum allowable building size for the area. Accordingly, if you reconstruct these old apartment buildings it is possible to create more rooms than existed before they were reconstructed. Even if the owners of apartments receive rooms as large as they were before the apartments were reconstructed, many unoccupied dwelling units will remain in the extra floors built. In addition, newly constructed apartments in the neighborhood are sold at high prices. People sold the “spare floors” that emerged through the reconstruction on the open market as newly constructed apartments and thereby covered most of the apartment building reconstruction costs.

These few cases attracted a great deal of public attention. Many people considered the possibilities for “presents from heaven,” even if they did not have the capital for reconstruction. The government was also encouraged, and the related laws were revised. The government supports the more effective implementation of this method of increasing the number of rooms through reconstruction and paying reconstruction costs by selling the additional rooms. Many apartment residents came to believe that if their apartments became dilapidated, they would be able to get new apartment rooms without paying money by using this method.

However, it is only possible to use this scheme in the case of areas where real estate prices are extremely high with exceptionally large margins of floor-residential area ratios. In the case of many apartments, owners can reduce the burden of paying capital somewhat, but unless they pay high construction costs, they cannot reconstruct their apartments. They rarely receive new apartments for nothing.

In the present situation, in which many current owners cannot pay reconstruction costs, dilapidated apartments need another “exit.”

In the present situation, in which many current owners cannot pay reconstruction costs, dilapidated apartments need another “exit.” It is necessary to face the reasonable solution head-on, which involves current apartment owners selling all their apartments and walking away and developers buying them and reconstructing buildings with different specifications.

Disappointingly, the government has yet to formulate a system for this solution. For example, if an apartment owner opposes the reconstruction of the apartment to another use of building, he or she can obstruct an entire plan. It is almost impossible to ensure that all apartment owners in a building will simply walk away.

Many apartment owners and the government look at a few very lucky cases and misinterpret them as being able to be applied to all apartments. Although only a few people can receive “presents from heaven,” they nevertheless try to develop a pathway. In reality, for more than 90% of apartment buildings, their owners cannot reconstruct them unless they pay most of the reconstruction costs themselves. But other solutions will be rejected if one-fifth of distressed owners or even a single person opposes them. As a result, in Japan, many apartments cannot solve problems even if polluted water leaks out of drainage pipes or it is revealed that they require earthquake strengthening work. There are no developers who are willing to buy those apartments to reconstruct them as commercial buildings. Nevertheless, some Japanese people in deteriorating apartments continue to dream of receiving presents of new apartments from heaven for free.

ODAKI Kazuhiko is a professor at Nihon University and senior fellow at the Research Institute for Economy, Trade and Industry.

 

 

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