One component of the problem is that "housing" isn't a free market. More specifically, if you buy a plot of land in nearly any city or town, you aren't free to build whatever you want (e.g. building a duplex or small apartment building). The housing supply is centrally controlled by the local (and possibly other levels of) government, via zoning rules and building codes. Property owners tend to vote more than renters or future residents, so they generally vote for a more controlled supply of property which helps to keep prices on an upwards trend.

What seems to help with this Japan is that zoning and building codes are top down from the highest level of government, so they can adjust supply according to flows of people. E.g. Tokyo builds as many units of housing as people who move into the city. (Among other differences.)

>What seems to help with this Japan is that zoning and building codes are top down from the highest level of government

This is the only way to effect a society where housing is "not an investment". Otherwise you're looking at local governments that are wholly captured by a constituency tilted toward, effectively, cronyist voters furiously determined to keep their property as valuable as possible.

Rents in Tokyo aren’t really that cheap on a square meter basis, just the size of unit you can rent is much smaller. Housing is actually more expensive to buy than many American cities (comparing equivalent sizes).

Fair point, but people tend to demand less space right? Is the average-sized rental affordable for the average income in the city? I've heard the relative affordability is better than most of the Western world.

Incomes kind of suck in Tokyo, so no. The average income is like 325,000 yen/month, the average for an 85 sqm apartment in an average area is 271,000 yen/month. Life is tough, you need to think small or think super long commute.

I think I can see how buying up single family homes, and not living in them can artifically increase housing prices.

But I dont see why we should disincentivize people from buying multi-family homes and renting them out. Being a landlord is not free, and its not a charity. Landlords need an incentive to provide services like maintaining the property, renovating and dealing with the headaches of owning property. If property did not offer any financial return, less people would buy multi family homes or they would put as little effort into maintaining the property.

A Land Value Tax would help a lot: http://www.henrygeorge.org/pcontents.htm

It would be a good idea. 2008 went a long way towards disabusing a lot of folks of the notion that buying property is always a good investment.

But given the way my mom still talks up real estate there's probably some more room for tamping down.

Good point, prior to 2008 it seemed like everyone was convinced that buying a house was a no brainer and that renting was throwing your money away.

Maybe what happened with Detroit helped too.

In Asia, house value is like car value. People want to buy brand new ones, and the minute it's used, it's worthless. People can live in their old house as long as they want to, but young people would prefer a clean new house free of mold (humidity makes it inevitable) and other problems and they can get a new house relatively affordably.

It works very well. The fact house prices in America/many Western countries increase with time is an anomaly that applies to no other item as far as I know, barring the odd historical/valuable antiques. But nobody can predict their value 10 years from now.

The physical house itself generally isn't gaining in value. A newer house tends to be worth more, so age is still impacting the price.

Many of the houses near me are torn down and replaced after being purchased, so the price is more reflective of the cost to acquire the land.

The mold issue isn't unique to Asia. Parts of the southern US have a preference for new homes due to mold, termites and storm damage.

>In Asia, house value is like car value. People want to buy brand new ones, and the minute it's used, it's worthless. People can live in their old house as long as they want to, but young people would prefer a clean new house free of mold (humidity makes it inevitable) and other problems and they can get a new house relatively affordably.

Moreover that, in China, there are close to no second hand cars. Second hand market is microscopic.

The same is true witch apartments. It amazes me to see rich Chinese simply abandoning their old apartments when they move to new ones. Personally met a family with 4 apartments, who simply left each of their old apartments collecting dust.

What about an old mouldy home in a super desirable location?

Also is brand new outweigh renovated?

Tear it down and build it over, especially if you're an investor and can buy a bunch of mouldy homes on a block.

Example in the US is smaller suburban houses that happen to be located near commuter rail stations. They are torn down and replaced with new, bigger houses. The neighborhood across the tracks from my house is another example: Doctors and professors have bought and "renovated" all of the smaller houses.

I notice something similar with hotels. My experience in a hotel is 100% proportional to the age of the hotel. The newer the better. Hotel owners rarely renovate unless they are in super prime downtown locations. They just let the hotel deteriorate while lowering their room rates while someone builds a new hotel next door.

In Japan, it's common for the land to be worth a lot of money and the house on the land to be worth nothing. New buyers frequently tear down the house and build a new one.

After a few decades of ownership, it is not unheard of for people to move out of their house, tear it down and replace it with a new one, and then move back in. I guess they rent a place to live while this is happening.

In Japan particularly, this is a legacy of the poor quality of houses built in the early 20th century and the period after WWII when everything was slapped together as quickly as possible. They really were worthless after a decade or two because they were not built to last.

This seriously damages the incentives for maintaining existing homes, because they are going to be worthless in 10 years, why bother?

Housing is a good investment for natural reasons: as population increases, housing near developed communities becomes scarcer.

To tamp down on that concept would be really difficult. You'd probably have to artificially limit the ROI of home sales, which would likely increase the number of renters. Then what? Rent goes up, so you have to artificially limit the price of rent. So how do you choose the limit?

Then once you've chosen the rent limit, will RE firms have an incentive to build?

Free markets work pretty well for settle prices. The problem is that not everyone can participate equally. If we artificially brought people out of poverty instead of artificially fixing housing markets, the housing problem would be a lot less severe.

It's inevitable that land prices in urban areas will go up as populations grow. That doesn't mean that the price of housing has to grow too. You could build more density (build up, build smaller units) to keep rents and prices stable.

And this is the way cities used to work, pre-automobile. Our post war sprawl is a huge cultural experiment, and there are a lot of people who think it is not sustainable.

There's an argument that urban housing is deflationary because of land reclamation and taller buildings. So is farm land because of crop farming efficiency.