Japan's declining population has long been recognized as a social issue, but as someone in the real estate industry, I would like to share a different perspective on this change rather than simply viewing it as a negative risk. According to the Ministry of Internal Affairs and Communications, Japan's total population will have declined for 14 consecutive years by October 2024, and the outflow of population, especially in regional cities, is a serious problem.
It is not uncommon to hear the pessimistic view that "since the population is declining, the value of real estate will only decrease. However, by analyzing data from the field and social changes from multiple perspectives, we are discovering the potential for new value creation that lies ahead. In this paper, we will discuss new perspectives that real estate investors should have and strategies for creating future asset value in the midst of the major trend of population decline.
Polarizing Real Estate Values: The Importance of Future-Focused Location Selection
The impact of population decline on the real estate market is by no means uniform. Certainly, as the absolute number of demand decreases, many properties will have difficulty maintaining their value. However, a closer analysis of the data reveals the reality that there is a polarization between areas where values are declining and those where values are, in fact, increasing.
The key to this is the " compact city" policy promoted by the government. This is an initiative aimed at sustainable urban management by concentrating urban functions such as medical care, welfare, commercial facilities, and housing in specific areas and connecting them with a network of public transportation systems. This policy is expected to maintain population density and steady real estate demand in areas designated as "residential zones.
| Benefits | Contents |
| Reduction of administrative costs | Efficient provision of infrastructure and public services will become possible, reducing the financial burden on local governments. |
| Improved living convenience | By consolidating commercial and medical facilities, residents can live on foot or by public transportation. |
| Maintenance and improvement of real estate values | Population density will be maintained in the residential zones, stabilizing real estate demand. |
| Reduction of environmental impact | Reduced dependence on automobiles will contribute to lower CO2 emissions. |
| Points to be noted | Contents |
| Decline in value outside the zone | In areas outside the residential zones, there is a risk of accelerated population outflow and a decline in real estate values. |
| Difficulty in consensus building | Careful consensus building with local residents and businesses is essential to promote the policy. |
It is important for investors to accurately decipher this "selection" process. The ironclad rule for real estate investment in an era of declining population is to focus investment on areas with growth potential, with an eye on future urban planning.
Learning from Successful Cases: Creating "New Value" in Toyama City
Toyama City is often cited as a successful example of a compact city policy. Toyama City revitalized the JR Toyama Port Line, which was scheduled to be closed, as a next-generation streetcar (LRT) and promoted urban development centered on public transportation.
This initiative has produced remarkable results. As a result of increasing the number of stations and doubling the number of services, the number of LRT users has more than doubled compared to the JR era. In particular, the elderly have more opportunities to go out, and the central city area has become newly bustling. Needless to say, this policy has boosted real estate values in the central area.
| Toyama City's Compact City Policy and Major Results | |
|---|---|
| Main Initiatives | Achievements |
| Introduction of next-generation streetcars (LRT) | Number of users more than doubled from the JR era (from approx. 2,000 persons/day to more than 4,000 persons/day) |
| Encourage residents to live along public transportation lines | Population in the central city turns to increase |
| Fare discount system (e.g., for senior citizens) | Increased opportunities for the elderly to get out and about, contributing to improved health and revitalization of the local economy |
The case of Toyama City clearly demonstrates that new value can be created even under a declining population by linking infrastructure redevelopment and urban planning. In recent years, " renovated town planning, " in which vacant houses are renovated and turned into new exchange centers and business offices, has also been successful in many areas. These trends are no longer a passing fad, but are becoming a new trend in the real estate market.
Conclusion: Investment in the future comes from the fusion of "human capital" and "technology
The challenge of a declining population is forcing us in the real estate industry to make major changes. At the same time, however, it also means the arrival of new business opportunities that are not bound by old values.
INA & Associates, Inc. has adopted the corporate philosophy of being a " Human Capital Investment Company. This is an expression of our determination to not only broker properties, but also to use technology to analyze information and provide value for the future of the people who live there. We believe that real estate investment in cities with declining populations is a stage that embodies this very philosophy.
We accurately grasp the "compact city" and "urban renewal" movements that are designing the future of the region, and breathe new life into idle assets such as vacant houses. To do this, both technology in the form of sophisticated data analysis and human resources (human assets) that listen to the voice of the community and envision its future are essential.
Real estate investment in an era of declining population is no longer so simple that it can be judged only by specifications on a map. We believe that the only way to success is to maximize the potential of the land and create sustainable value.
If you have any real estate concerns or are interested in building your future assets, please contact us to hear from our experts. Based on our data and experience, we will provide you with the best solution for each and every one of our clients.
Frequently Asked Questions
Q1:Will all real estate in local cities with declining populations lose value?
A1:Not necessarily. As explained in this paper, real estate values may rather increase in areas where urban renewal is underway, such as in residential zones under the Compact City Policy or in areas where urban renewal is underway. What is important is to have an accurate understanding of the urban planning of the local government and future trends, and to have the perspective to "select" areas.
Q2:What specific methods are available for "vacant house utilization"?
A2:Depending on the condition and location of the vacant house, there are various possibilities, such as renovating it into rental housing or a shared house, using it as a café or store, or renting it out as a satellite office. In recent years, an increasing number of municipalities have established vacant house bank systems to assist in matching vacant houses with businesses that wish to utilize them.
Q3:Where should I start to gather information on real estate investment?
A3:First, we recommend that you check information on urban planning published by the Ministry of Land, Infrastructure, Transport and Tourism and local governments. In particular, the "Location Optimization Plan" is an important resource for understanding future urban development. It is also essential to collect both macro data, such as real estate price indexes and demographic statistics, and micro information, such as local market conditions and rental demand. Consulting with a trusted real estate professional is also an effective way to do this.
Daisuke Inazawa
Representative Director of INA&Associates Inc. Based in Osaka, Tokyo, and Kanagawa, he is engaged in real estate sales, leasing, and management. He provides services based on his extensive experience in the real estate industry. Based on the philosophy that “human resources are a company's most important asset,” he places great importance on human resource development. He continues to take on the challenge of creating sustainable corporate value.
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