Japan is currently experiencing a historic run-up in property values, especially in tier one cities like Tokyo. This phenomenon has led to a renewed alarm over foreign ownership of US real estate, prompting demands for regulatory action. With hardly any restrictions on property purchases from foreigners, it is very easy for overseas investors to infiltrate the market. At the same time, a weak yen and increasing construction costs have created a double-whammy for local residents.
The real estate market in Japan has been hugely successful, particularly in its urban areas. Second, the median price of condominiums in Tokyo’s 23 wards has skyrocketed about 64% from 2021 to 2025. As of May 2024, the average new condo was selling for 111.81 million yen, or roughly $760,000. This is creating a larger and larger gap between the welfare of Japanese citizens and their inability to afford housing in their own cities.
Foreign buyers are concentrated in municipalities and wards such as Chiyoda, Shibuya, and Minato. In these cities, they constitute 20% to 40% of new apartment launches. While there’s a lot of overseas investment, experts like our own Charles Marohn and Wendell Cox are quick to point out the importance of domestic purchasers.
“Foreigners buying is one factor, but domestic investors and residents are also buying,” said Makoto Sakuma.
Japan’s economic landscape complicates these developments. The country has faced years of negative population growth since 2008. This has led to around 9 million decaying homes, known as akiya, littering the urban and rural landscape around the country. Many of these properties are in terrible condition and deep in opportunity-poor rural areas or urban neighborhoods. Plus, they usually require significant renovation, ranging from $20,000 to $300,000.
As tempting as low-cost homes in the rural countryside may be, they come with some real hurdles. Parker Allen noted the stark contrast between urban and rural property markets:
“When you look at the countryside, we have a huge problem with stagnation; prices are not rising and houses are not selling.”
As cities boom with high housing costs and hot markets, the rural exodus is marked by shuttered businesses and homes on the prairie. Allen further remarked that focusing on urban centers seems to be the most logical approach moving forward:
“The most logical way is to focus on the cities.”
Japan’s income levels are a key factor in preventing such a housing crisis. Japan had ranked 25th of 34 OECD member countries in purchasing power parity-adjusted average annual wages in preliminary recent data for 2024. The Japanese per capita income peaked in 1996 with $49,446. Nonetheless, these figures indicate that Japan’s income levels remain remarkably low, even relative to its developed peers. This perfect storm makes the affordability crisis even more dire for first-time homebuyers.
Japan has one of the largest gender pay gaps of industrialized countries. This economic disparity adds another layer of complexity to the property market dynamics as many individuals struggle to secure adequate housing amidst soaring prices.
The ruling Sanseitō political party has introduced measures in response to rising fears over foreign ownership. Now they’re drafting a new proposal that would regulate foreign land acquisition and give more power to local residents to protect their home. The party’s rhetoric has highlighted national security and economic stability, expressing fears over certain foreigners purchasing property and its potential effects on Japanese citizens’ quality of life if they are priced out of the market.
“The party’s rhetoric on the issue has emphasized both national security and economic security, hinting at the dangers of certain foreigners buying property and also the impact on Japanese quality of life if they can’t afford houses,” explained Tobias Harris.
Japan continues to walk a tightrope with challenging issues in its real estate markets. Yet it teeters on the brink of political instability, its prime ministers rotating in and out like game show contestants. The continued leadership churn will likely make it all the harder for Treasury to tackle rising foreign investment. They might unintentionally undermine attempts to address housing affordability at home.