How to evaluate the purchase of a depreciating asset such as buying a house in Japan where prices have declined 23 out of the past 29 years.
In this episode you’ll learn:
- There are no magical solutions to dealing with a housing bubble.
- Why Japanese home prices have declined for decades and why the houses are so cold in the winter.
- Why buy a house even if it will fall in price and how to go about doing so.
Show Notes
Designing Your Life: How To Build A Well-Lived, Joyful Life by Bill Burnett and Dave Evans
Japan Land Price Trends – Mitsui Fudosan
Raze, rebuild, repeat: why Japan knocks down its houses after 30 years – The GuardianMortgage rates
Japan’s house for all seasons – Financial Times
Buying a house in Japan can be an investment in joy – The Japan Times
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Episode Summary
In this episode of the Money For the Rest of Us podcast, host David Stein discusses different approaches to dealing with housing market bubbles including exploring a culture in which housing prices always decline. Should you purchase a new home if you think there may be a risk of it depreciating in value in the future? What factors should play a part in your housing decision making? David covers these questions and more while sharing his insights into the Japanese housing market and culture and his own decision to purchase a second home in Phoenix, AZ.
There is no magic formula for navigating a housing bubble
David explains that there is, unfortunately, no magic when it comes to making a decision regarding housing market bubbles or predicting the future appreciation value of a house. Housing bubbles can’t be timed, and the future is always uncertain. This shouldn’t, however, keep you from purchasing a home when your lifestyle calls for it. And you shouldn’t purchase a home without researching and taking the precautionary steps that can help you make an educated decision. David shares that and he and his wife have decided to purchase a second home in Phoenix, AZ. “I’ve been very careful to look,” he says, “at…the price of homes in Phoenix relative to income and rent.” There are ways to measure whether or not your home purchase is a reckless decision or not. To learn more about why David decided to purchase a second home and how he came to the decision on where to purchase it, listen to the full episode!
Japan’s intriguing outlook on the housing market
David and his wife have been traveling recently in Japan, and the trip has provided them with lots of surprises – not least of which is the observation that houses in Japan are always on the decline in value. It only takes a few months after a Japanese house it built before it depreciates drastically in value, even if it has never been lived in! Why is this? David explains that the Japanese housing system works in a 20-30 year cycle. A new house is built and then torn down between 20 to 30 years later to make room for a new one. Partially due to “low quality construction to quickly meet demand after the Second World War, repeated building code revisions to improve earthquake resilience, and a cycle of poor maintenance,” it is a surprise to many that it is the land that the house is built on that carries most of the value of a property – not the house itself. While it can be hard to imagine investing money into buying a Japanese house – most aren’t cheap – it is important to remember why people build, live in, and purchase homes. The same set of priorities don’t apply to everyone. David shares more about the intriguing, constantly declining housing market of Japan in the rest of this episode, so be sure to listen.
Cultural priorities can influence housing choices
Japan’s culture is vastly different from our western one, not least of all in the values held dear when it comes to the purpose of a house and how to live in one. David shares that every house he and his wife have stayed in during their trip in Japan has been freezing. There is no central heating system and no thermostats. He explains that this has nothing to do with a lack of innovation or with not wanting to invest in an inevitably depreciating housing economy. Rather, it has to do with what the Japanese value, which is a bond and experience with the outdoors and the land on which they live. The environment can often be very cold, and the Japanese rely upon focused-area heating elements, such as heated tables, heated toilet seats, and space heaters. Insulation is not popular, and they use vastly less energy than western countries. David shares some insightful writing by Japanese author Kamo no Chōmei, helping to explain why the Japanese value connection with the earth and air over some comforts, such as a warm house.
What matters most? Keeping lifestyle at the forefront
While the Japanese culture of housing is much different from the western culture’s, there are similarities in principle. Why do we buy a house? We probably desire involvement in a certain community and want to put down roots in a place and with people that we care about and want to foster a relationship with. David shares some reasons on why he and his wife have chosen to purchase a home in Phoenix, and most of them center around the desire for a certain lifestyle. The Japanese lifestyle values close proximity to the outdoors. Ours may not, but we should set our focus on what matters when it comes to making a decision on whether or not to purchase a home. We can’t bet on what the housing market will do. We can’t tell when a housing bubble will emerge. But we can control our lifestyle, and the house you live in is a large part of that. David encourages the buyer to not live outside their means and grab the largest home available and to not rely on leverage. He says to, “just choose to live somewhere where you can have a connection to a community, and establish those roots, and decide how much potential depreciation you’re willing to take if home prices fall.” Listen to the full episode for the rest of this interesting conversation on housing prices and purchasing decisions!
Episode Chronology
- [0:20] Unfortunately, there isn’t a magic formula for dealing with a housing bubble.
- [2:33] Making the decision to purchase a second home.
- [5:31] Japan’s declining housing market.
- [13:10] Another quirk of the Japanese house: it’s freezing.
- [20:28] Should we imitate the Japanese when making decisions regarding the housing market?
- [24:19] Keeping priorities straight: making a purchasing decision based upon what matters.
Related Episodes
357: Is a Housing Crash Coming?
Transcript
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