By Takeshi Kuroiwa
Daily Yomiuri Staff Writer

Houses in Japan are known for their expensive price tags. According to statistics compiled by the Construction Ministry's Housing Bureau, the average cost of a house in Tokyo and neighboring urban areas in 1999 was about 56 million yen and the average floor space was about 113 square meters.

Although high land prices have long been considered as the primary cause of expensive housing, Masaharu Sakuta, a researcher of the country's housing problems, pointed out in a recent interview with The Daily Yomiuri that inflated land prices are not the only cause of the problem. Sakuta, who is research director at the Japan Research Institute, Ltd. and coauthor of the book "Nihon no Jutaku o Sukue" (Save the Houses in Japan), argues that the houses themselves are also too expensive, compared with many other countries.

Land prices have in fact been falling since the bursting of the country's bubble economy, although there are signs that this trend is changing. A Bank of Japan official, Shuichi Uemura, released a report in October on the recent characteristics of land prices in which he stated that land prices are leveling off in some parts of Tokyo, while prices of land in other areas are still decreasing. According to Uemura, this indicates that a bipolar trend of land prices recently has emerged based on the potential profitability of land.

Sakuta believes such a trend is a "healthy" way of forming land prices since it is market-oriented. What is not healthy, according to Sakuta, is the prices of the houses themselves, which Sakuta said have stayed at bubble economy levels.

Following is an extract from the interview with Sakuta.

Daily Yomiuri: How did you become involved in the issue of housing costs?

Sakuta: In the early 1990s, or shortly after the burst of bubble economy, the general public wasn't aware that in Japan, the cost of building houses was too high.

In 1993, I published a report on house prices. At that time, land prices had already started to decrease gradually, even though they were still far more expensive compared with current levels.

However, prices of the actual buildings remained at the same high levels (of the bubble economy). In preparing the report, I collected data of a fragmentary nature that was publicly available at that time.

I compared the cost of building houses in Japan and the United States and discovered that the cost in Japan was about three times higher than the cost of building a similar house in the United States.

Before the report was released, I thought that everyone in the country was aware that housing itself was too expensive...so I was quite surprised when the report was widely covered by the media, which focused on this very point.

How did you calculate the difference in the housing prices?

In the report, I demonstrated a simplified comparison for the sake of argument. In the United States, houses had been built at the average cost of about 200,000 yen per tsubo (3.3 square meters). In Japan, the average cost of building houses was about 600,000 yen per tsubo. Therefore, the cost of building houses with a floor space of about 100 square meters was about 1.8 million yen in Japan, while the cost of building a similar house in the United States was about 6 million yen.

The gap in the cost between the two countries has slightly diminished since I wrote the report. However, the differential is still 200 percent to 300 percent, which I think is too high.

Thus, in 1999, I jointly published "Nihon no Jutaku o Sukue," with architect Norimoto Kashino.

You also mentioned the housing industry in Australia in the book.

Several years ago, I headed a group of housing experts, including officials of the Construction Ministry and major housing makers, which made a study tour to Australia to observe its housing industry.

We found out that in Australia houses were built at about one-sixth the cost of those in Japan. Even more surprising was that Australia had a very advanced system of manufacturing housing materials and building houses as well as the system of selling those houses.

In Australia, companies need to minimize the cost of building houses to survive in the face of fierce competition in the housing market in Australia, which includes several foreign firms from countries such as Italy and the United States.

As a result of the competition, Australian consumers are fully aware of the prices of houses, unlike Japanese consumers.

Why aren't the Japanese public so aware of housing issues?

I think there hasn't been enough discussion by the general public concerning the price of housing. The topic has only been discussed among separate small groups, including one for housing industry experts.

In fact, the issue of expensive housing was first raised decades before the release of my report. In 1970, a weekly magazine pointed out that houses in Japan were too expensive, regardless of high land prices.

Nevertheless, ordinary consumers in Japan have continued to believe that houses are expensive because of unavoidable factors such as high land prices and the high price of general commodities.

There is also the belief among many members of the public that carpenters do not work sufficiently hard. Carpenters are criticized for taking too many breaks and for not showing up on rainy days.

Another reason (for the willingness to accept high house prices) is due to the country's geological characteristics, which make it susceptible to earthquakes. This gives the impression that houses have to be built extremely sturdily, entailing extra costs.

Because of these factors, general consumers have somehow believed that high housing prices in Japan are inevitable.

Besides, in general, Japanese consumers have far less knowledge about houses compared with consumers in the United States and Europe.

In the United States, for example, do-it-yourself is quite popular with homeowners who do their own painting and carpentry work. In Japan, we don't have such a habit. Most work on houses, including small jobs, are done by professionals.

I think the Japanese might have been too busy in the era of high economic growth to have time to take care of their houses.

What are the factors behind the high cost of housing?

In the 1993 report, I discussed the possible causes underlying expensive housing after dividing them into two groups in an effort to make the problem more understandable for the general public.

One group is those related to factors that are not in need of revision and the other is related to those factors that should be revised.

I think we shouldn't ignore the country's unique circumstances, such as the softness of the land and the scarcity of land in urban areas. It is meaningless to make a comparison of housing prices between Japan and the United States without examining these factors.

For example, the Building Standards Law contains a large number of detailed regulations for the construction of houses. Some might say the law is too detailed. But I think many of the regulations were made out of fear of natural disasters, including the rapid spread of fire caused by earthquakes due to land scarcity. In the Great Earthquake of 1923, more people died in the resulting fires than in the shock of the quake itself. We need to have certain regulations to help prevent such disasters.

What are the factors that should be revised to achieve a reduction in house prices?

I think these factors include the multilayered contract system for building houses and the distribution system for housing materials. I think it is within human control to revise these factors.

In Japan about 70 percent of houses are built by local carpenters using traditional construction methods. However, those professionals are in small- or midsize companies and in many cases they subcontract building work from large-scale companies. Since those small firms lack marketing abilities, they tend to work under the umbrella of large companies.

Due to the contract system, not much of the profit gained by selling houses is left in the hands of the local carpenters who actually construct the houses.

A lack of financial incentives among local carpenters therefore means they are reluctant to learn advanced methods for constructing houses that could reduce building costs.

Another important factor is the distribution system for housing materials, which I think is unsatisfactory. In the system, several intermediaries are involved and as a result, housing materials available to those local carpenters become expensive after they have passed through the complicated distribution process.

I believe the cost of building houses could be reduced by 30 percent if these factors were reformed.

Are there any other factors that should be examined?

In urban areas, houses are built with materials manufactured by major housing companies.

As far as major housing companies are concerned, they have developed a very advanced system of making prefabricated housing materials. Previously, carpenters processed wooden materials at the construction site. But previous methods were time-consuming and wasteful.

The large makers have developed a system of processing materials at their factories and distributing them to each construction site. In other words, they have developed a more efficient method of processing materials, which is also believed to have reduced the cost of housing materials.

However, according to Construction Ministry statistics, the price of materials processed with the advanced system remained the same as before. The development of an efficient method of making housing materials did not result in a reduction in prices.

The reason for the unchanged price is quite simple. Major housing makers in the country have adopted the strategy of selling the luxurious image of their houses which, of course, brings them more profit.

However, they are private companies, and they pursue profit. The bottom line is that there are consumers who buy the images (of luxurious homes). Again, the lack of information on housing is critical among consumers.

Therefore, I think that it's necessary to provide more information on housing issues, and that's our role as a think tank.