Japan Risks Housing Recovery in Temporary Worker Push: Mortgages

Photographer: Akio Kon/Bloomberg

A man sitting on a grassy hill looks out over the Tama New Town residential development in Tama City, Tokyo. Home ownership has been declining in Japan after more than a decade of deflation and slower wage growth. It dropped to 64 percent in 2013 from 66 percent in 2011, according to the land ministry. Close

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Photographer: Akio Kon/Bloomberg

A man sitting on a grassy hill looks out over the Tama New Town residential development in Tama City, Tokyo. Home ownership has been declining in Japan after more than a decade of deflation and slower wage growth. It dropped to 64 percent in 2013 from 66 percent in 2011, according to the land ministry.

Momoko Suzuki quit her sales job in Tokyo and took a temporary position so she could pursue her film ambitions. Suzuki’s employment change may force her to abandon another goal -- owning a home.

“I am single and I am a temporary worker, which makes buying a home even more difficult,” said Suzuki, who makes 60 percent of the 4 million yen ($39,000) a year she used to earn selling ferry trips.

The ranks of temporary and part-time workers are set to rapidly expand in Japan, jeopardizing a housing recovery that took hold in 2010. Prime Minister Shinzo Abe’s cabinet is pushing to open more of the economy to non-permanent employees as part of a package of policies to make Japanese companies more competitive and boost economic growth. While helping corporations, the shift to temporary workers, who lack the income and job stability to get mortgages, will hurt home sales.

“We are no longer in the era where workers have lifetime employment and go out to buy their own home,” said Hidetaka Yoneyama, a senior fellow at Fujitsu Research Institute in Tokyo who has written five books on Japan’s housing market. “I don’t see the current housing demand continuing.”

Since housing starts in Japan fell to 788,410 units in 2009, the market has gradually expanded. Housing starts rose to 980,025 units in 2013, the highest in five years, according to a land ministry report on Jan. 31. The increase has been spurred by an anticipated boost in the consumption tax, which homebuyers pay, to 8 percent from 5 percent. It takes effect in April.

Photographer: Kiyoshi Ota/Bloomberg

Commuters stand on the platform of a train station in Tokyo. The ranks of temporary and part-time workers are set to rapidly expand in Japan, jeopardizing a housing recovery that took hold in 2010. Close

Commuters stand on the platform of a train station in Tokyo. The ranks of temporary and... Read More

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Photographer: Kiyoshi Ota/Bloomberg

Commuters stand on the platform of a train station in Tokyo. The ranks of temporary and part-time workers are set to rapidly expand in Japan, jeopardizing a housing recovery that took hold in 2010.

Abe’s Policies

In the Tokyo metropolitan area, the average purchase price for new apartments rose 2.7 percent to 41.7 million yen in 2013 from a year earlier. That’s the highest since 2001 when the survey started, Recruit Sumai Co. said in a report on March 12.

After Abe took office in December 2012, he introduced a strategy to loosen business regulations and increase government support in an effort to stem deflation and revive an economy that had been stagnant for two decades. The monetary and fiscal easing last year boosted business confidence to a six-year high. Economic growth rose for a fifth straight quarter in the three months ended Dec. 31.

Since the 1960s, the government has been using temporary workers to get around labor practices that make it costly to fire employees. The cabinet on March 11 agreed to send a revision to parliament for approval to change the Dispatch Worker Law to allow non-permanent employees in all jobs, up from 26 currently, according to the Ministry of Health, Labour and Welfare.

Slowing the Recovery

The proposal would boost the ratio of non-regular workers to 50 percent by 2020 from 37 percent in 2013, Yoji Otani, an analyst at Deutsche Bank AG, said. If approved, the law would take effect in March 2015.

Otani said the law will put the brakes on the recovery of the housing market, which accounts for 15 percent of GDP in the world’s third-largest economy.

“The government doesn’t seem to realize that these workers are also consumers,” Otani said. “The revision would further erode housing demand because people without a full-time job will have a hard time getting their mortgages approved.”

These part-time, contracted and temporary workers won’t be able to take advantage of Japan’s mortgage rates, which are among the world’s lowest, Otani said. A fixed-rate, 35-year loan for a new home was 1.79 percent as of Feb. 5, an all-time low, according to the government-affiliated Japan Housing Finance Agency. That compares with 30-year mortgage rate of 4.33 percent in the U.S., Freddie Mac data show.

Stable Income

Many temporary employees don’t earn enough on a consistent basis to qualify for a mortgage. A stable income is a requirement to apply for a mortgage in Japan, according to SBI Sumishin Net Bank Ltd., an online company owned by Sumitomo Mitsui Financial Group Inc. and SBI Holdings Inc.

“For those who don’t have a stable income, it will be difficult for them to get a mortgage,” said Masaki Yamashita, a director at homebuilder Daiwa House (1925) Industry Co., which plans to boost its revenue from residential rentals.

A typical borrower’s annual payments on a 30-year loan usually amount to no more than 30 percent of their yearly income, according to Mortgage Corporation of Japan Ltd. The average monthly salary for a non-regular employee is about 195,900 yen, 63 percent of what a full-time worker earns, according to the health ministry. That means non-regular workers could get a mortgage for a home that costs no more than 21.2 million yen, or half the average price of a new apartment in Japan.

Declining Homeownership

“Non-regular workers with lower pay simply can’t afford to buy,” said Natsumi Ishino, a senior associate analyst at Macquarie Capital Securities Ltd., a unit of Australia’s biggest investment bank, in Tokyo. “It is a harsh reality.”

The percentage of Japanese who own homes has been declining after more than a decade of deflation and slower wage growth. It dropped to 64 percent in 2013 from 66 percent in 2011, according to the land ministry. For people between the ages of 30 and 39, it declined to 39 percent in 2008 from 53.3 percent in 1983.

In the U.S., the ownership rate was 65 percent in 2013, according to U.S. Census Bureau.

Developers in Japan are ramping up construction of rental units as homeownership subsides. They built 11 percent more homes for rent in 2013 from a year earlier, according to the land ministry. Rental housing accounts for 35.8 percent of total stock in Japan, it said.

Rental Surge

Daiwa House, Japan’s biggest homebuilder by market value, plans to boost rental revenue 35 percent to 800 billion yen by the year ending March 2016, according to the company’s mid-term plan announced in November.

“The generation of baby boomers was extremely focused on having their own home,” said director Yamashita. “More and more younger people these days prefer to continue living in high-quality rental housing and see that lifestyle as economical instead of being tied down to mortgages.”

Revenue from rental housing at Sekisui House Ltd., Japan’s second-biggest homebuilder, gained 28 percent in the last three years, while sales from homes increased 14 percent. The company expects rental housing to expand further, President Toshinori Abe said.

Daiwa House shares fell 0.6 percent to 1,733 yen in Tokyo, while Sekisui House dropped 1.7 percent 1,209 yen.

The declining number of Japanese who can afford a home, a trend that the growth in temporary workers will accelerate, doesn’t bode well for the economy, Otani said.

Wrong Decision

“The government is making the wrong decision,” he said. “The income gap in Japan between rich and poor will widen further and it will drive away the middle class that has been supporting the economy.”

Suzuki, 28, plans to remain a temporary legal assistant for three years while getting a license to become a freelance movie translator.

“Buying a home is no longer on top of my list,” she said with a big grin on her face. “I don’t have to work overtime anymore and I get to pursue my dream.”

To contact the reporters on this story: Kathleen Chu in Tokyo at kchu2@bloomberg.net; Katsuyo Kuwako in Tokyo at kkuwako@bloomberg.net

To contact the editors responsible for this story: Vincent Bielski at vbielski@bloomberg.net; Andreea Papuc at apapuc1@bloomberg.net

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