Today, as a real estate expert, I will discuss the topic of "valuable locations" in a society with a declining population.
The total population of Japan will be 123.34 million as of May 1, 2025, a reported decrease of 600,000 people from the same month last year. This major trend of population decline is beginning to have a significant impact on the real estate market, and many people may be concerned about the future value of their assets.
However, a declining population does not mean that all real estate values will decline equally. Rather, the polarization between real estate that maintains or increases in value and real estate that does not will become clearer in the face of these changes in the social structure. And the most important factor that determines the value is "location.
In this article, we will explain the current state of the real estate market in the era of declining population based on data, and provide an easy-to-understand explanation from a professional perspective of seven specific points to identify "valuable locations" that will maintain or increase asset value in the future. By reading this article to the end, you will acquire the knowledge necessary to make a wise real estate selection with an eye on the future.
To properly understand the impact of a declining population on the real estate market, it is essential to first gain an objective understanding of Japan's demographics and the resulting changes in the market.
According to the Statistics Bureau of the Ministry of Internal Affairs and Communications, Japan's total population has been declining for 16 consecutive years, with the Japanese population in particular decreasing by 892,000 year-on-year as of May 2025. Even more serious is the decline in the working-age population (15-64 years old), which plays a central role in economic activity. The National Institute of Population and Social Security Research estimates that the working-age population in many local cities will decline by 30% or more by 2040. This demographic change is directly linked to a decline in housing demand, especially in regional areas, and is significantly changing the structure of the real estate market.
Population decline does not mean that real estate values will decline uniformly across the country. Rather, it is accelerating the polarization of the real estate market. On the one hand, in metropolitan areas such as the Tokyo metropolitan area, where population inflows continue, real estate prices continue to rise on the back of strong housing demand. On the other hand, in regional areas where the population is declining significantly, real estate prices continue to fall due to declining demand.
Symbolic of this polarization is the problem of vacant houses, which continues to increase throughout Japan.
In recent years, the phenomenon of "urban spongification" has become an issue in urban areas as well. This refers to a situation in which vacant houses and lots are scattered like insects in the center of a city, filling the space like a sponge.
This sponging leads to inefficient administrative services and reduced livability, and in turn, to a decline in the attractiveness of the region as a whole. In order to maintain asset values under such circumstances, it is essential to have a strategic perspective to identify locations that will be "chosen" in the future.
Even in a society with a declining population, the value of all real estate does not necessarily decrease. Rather, locations that meet certain criteria have the potential to maintain or even increase in value due to their rarity. Here are seven important points for identifying "valuable locations" with high property values.
Transportation convenience is the most basic factor in measuring the value of real estate. In particular, the distance from the nearest station is important, and is generally valued within a 10-minute walking distance. Stations with access to multiple train lines and stations with good access to the city center can expect stable demand due to the convenience of commuting to and from work and school. It is unlikely that the value of the property will fluctuate significantly in the future.
The availability of commercial, medical, and educational facilities within walking distance, which are essential for daily life, also greatly affects the value of a location. In order for these lifestyle service facilities to operate sustainably, a certain trade area population is necessary.
| Facility Type | Typical Trade Area Population |
|---|---|
| Urban convenience store | Approx. 3,000 people |
| Food supermarket (2,000-3,000 m2 scale) | 10,000 - 30,000 people |
| Drugstores (1,000 to 1,500 m2 scale) | 10,000-30,000 |
Areas where the population density is expected to be high enough to maintain these facilities even as the population declines are likely to have high livability and maintain their asset values.
Many local governments in Japan are currently formulating location optimization plans based on the "Compact City Policy" promoted by the Ministry of Land, Infrastructure, Transport and Tourism. This plan seeks to create sustainable cities by concentrating residential areas and urban functions (commercial, medical, welfare, etc.) in specific areas in order to cope with a declining population.
The following two main areas are defined in this plan.
Whether or not the property you are considering is located in one of these zones as defined by the local government is extremely important information for predicting future property values. If the property is located within a planned area, there is a greater likelihood that administrative services and lifestyle conveniences will be maintained in the future.
Areas where redevelopment or large-scale infrastructure improvements are planned in front of stations are expected to increase the attractiveness and convenience of the town in the future, and real estate values can be expected to rise. This is because redevelopment will increase the potential of the area by creating new commercial facilities and improving the road network. It is important to keep a close eye on redevelopment trends by checking urban planning information published by the local government. In particular, redevelopment involving the relaxation of floor-area ratios may greatly increase the value of land use.
As mentioned earlier, a certain population density is necessary to maintain living service facilities. The purpose of the residential zones in the Location Suitability Plan is precisely to maintain this population density. In areas where the population is diluted, stores are more likely to withdraw and administrative services are more likely to be reduced. Whether or not a stable population density can be expected in the future is a barometer to measure the sustainability of the land.
In addition to location, the quality of the building itself has a significant impact on asset value. In particular, interest in energy-saving performance is growing, as compliance with energy conservation standards will become mandatory for new homes starting in FY2025. In addition to meeting the current standard of insulation performance grade 4, a house with performance of grade 5 or higher, which is likely to become the standard in the future, will be advantageous in maintaining asset value. This is also related to the eligibility requirements for the mortgage deduction, so it is a point that must be confirmed before purchase.
It is essential to maintain the property's value by ensuring that the property is properly maintained and managed, including the management of the management association for condominiums and the implementation of regular maintenance for detached houses. It may be advantageous at the time of sale if the building's repair history and future repair plans are clear, and if such information is stored as "housing history information (Iekarute). Good management is a great source of reassurance for buyers.
In a society with a declining population, it is extremely important to view real estate not only as a residence, but also as a future rental asset. Here, we will explain strategies for selecting a location with an eye on future rental demand.
Although Japan's total population is declining, a different trend can be seen when looking at the number of households. The National Institute of Population and Social Security Research estimates that while the number of households in Japan will peak in 2023 and begin to decline, the percentage of single-person households will continue to increase, reaching approximately 40% of all households by 2040. Households headed by persons aged 65 or older are likewise on the rise.
This change in household composition represents a qualitative shift in demand in the rental market. The shift in demand from the traditional family-centered demand to compact residences for singles and the elderly is expected to accelerate.
In order to respond to this shift in demand, it is important to provide floor plans and facilities that meet the needs of the target demographic. Singles and the elderly tend to prefer compact units that are functional and easy to manage.
| Target demographic | Recommended floor plans and facilities |
|---|---|
| Singles | One room, 1LDK Free internet access Home delivery box Full security (auto-lock, security camera) |
| Elderly | 1LDK, 2DK Barrier-free design (handrails, no steps) Elevator Elevator ・Emergency call system ・Collaboration with nearby medical and welfare facilities |
These facilities will increase tenant satisfaction and lead to stable rental management. In particular, consideration for security and barrier-free accessibility will be important differentiating factors in the future rental market.
If you are looking to use the property as a rental property in the future, it is an ironclad rule to choose a location in or near an urban area where the population is unlikely to decline, and where transportation and living convenience are high. The aforementioned "7 points to identify a valuable location" overlap directly with the conditions for a location with high rental demand.
In addition, with the aging of the population, locations that are easily accessible to home care services such as home-visit nursing care are also highly valued. Areas with nursing care facilities nearby and easy access to service providers can be said to offer a safe living environment for the elderly. From a long-term perspective, choosing a location that can accommodate these changes in social structure is a wise strategy for maintaining and increasing the asset value of real estate.
In this article, we have explained, based on seven specific points, how to identify "valuable locations" that can be expected to maintain and increase asset values in the midst of major social changes such as a declining population.
In addition to traditional important factors such astransportation accessibility andthe quality of life service facilities, it is essential in the coming era to have a perspective to decipher the consistency with the compact city policy initiated by the national and local governments and the future potential of redevelopment. The quality andmaintenance condition of the building itself is also an essential factor in ensuring its value over the long term.
A declining population does not mean that the real estate market as a whole is pessimistic. Rather, we live in an era in which people have clearer criteria for choosing where they want to live, and the difference between locations that will be chosen and those that will not be chosen will become clearer. Using the seven points introduced in this article as a compass, we are convinced that practicing wise real estate selection with an eye on the future will lead to the protection and nurturing of your valuable assets.
Buying or selling real estate is one of the biggest decisions in life for many people. In order to make the best choice for your situation, objective advice from a specialist can be extremely helpful, and at INA & Associates, Inc. as real estate professionals, we will make the best proposal for each individual client's situation. If you have any questions or concerns about real estate, please do not hesitate to contact us.
Q1. Can real estate investment be an effective means of asset building even if the population declines?
A1. Yes, it can. However, location selection will become more important than ever. Even as the population declines, trends such as the concentration of population in urban areas and the increase in the number of single-person households are expected to continue. If you can select and invest in high quality properties in areas where such demand can be expected, you can expect stable income and maintenance of asset value.
Q2. Will real estate in rural areas lose value without exception?
A2. This is not necessarily true. Even in rural areas, locations such as prefectural capitals and regional central cities that are transportation nodes tend to maintain their value because of the expected influx of population from surrounding areas. Areas designated as "residential guidance zones" by local governments in their location optimization plans are also worthy of attention, as they are expected to maintain livability in the future.
Q3. Where can I check a municipality's "Location Suitability Plan"?
A3. It is published on the website of each municipality (city, ward, town or village). Try searching for keywords such as "(name of municipality) location optimization plan. In many cases, urban function zones and residential zones are color-coded on the plan, so you can check which zones the property you are considering is included in.
Q4: What is the "energy efficiency performance rating" of a house?
A4: It is an indicator of a building's energy-saving performance, which is evaluated based on two factors: "insulation performance grade" and "primary energy consumption grade. The higher the rating, the better the insulation and energy-saving performance, which not only leads to lower utility costs, but also gives an advantage in the evaluation of property value.
Q5. What can individuals do to maintain the asset value of their existing properties?
A5. First of all, it is important to keep in mind proper maintenance and management. For detached houses, inspect and repair exterior walls and roofs on a regular basis, and for condominiums, actively participate in the activities of the management association to ensure that the long-term repair plan is properly implemented. In addition, updating the layout and facilities to suit modern lifestyles through renovation or remodeling will also help maintain and improve asset value.