Rent Hikes Not Only in the Tokyo Metropolitan Area, but Also in Osaka and Fukuoka Cities.

This is not just a story about Tokyo or the Greater Tokyo area; cities with strong attraction, such as Osaka and Fukuoka, are seeing similar trends across the country.

Investor reports for J-REITs (Japanese Real Estate Investment Trusts) provide actual data on this. When tenants change, the comparison between the previous and current rent for the same apartment is referred to as the “rent fluctuation rate.” Advance Residence Investment Corporation (hereafter, Advance), a major player in the residential sector, announced a rent fluctuation rate of 9.8% in its financial report for the period ending in July 2024.

Since these are the same apartments, and assuming an average occupancy period of four years, this means rents have increased by about 10% despite the apartments being four years older. Some of the units have undergone renovations, but that is only a small portion; even excluding those, the rent fluctuation rate is 9.6%.

Rent in the 23 Wards of Tokyo Increased by 12.4%, Nationwide Trend of Rising Prices

When looking at Advance’s rent fluctuation rates by area, the 23 wards of Tokyo saw the highest at 12.4%, followed by the Greater Tokyo area at 8.9%, Kyushu (mostly Fukuoka Prefecture) at 7.8%, and Kansai at 4.5%. Except for Nagoya, which saw a decrease of -3.0%, all other regions experienced a positive trend, indicating a nationwide increase in rent.

Another major residential REIT, Comforia Residential Investment Corporation (hereafter, Comforia), also announced its highest-ever rent fluctuation rate of 9.9%. By area, the 23 wards of Tokyo saw a high of 10.3%, while the Greater Tokyo area had 15.7% and Kansai 2.7%.

The rent fluctuation rate is determined by the occupancy rate of rental housing. The occupancy rate reflects the supply and demand balance. Because J-REIT properties generally have higher quality and operational capabilities than the overall market, the occupancy rates for Advance and Comforia are 96.5% and 96.8%, respectively.

In the general rental market, according to the Japan Rental Housing Management Association, the occupancy rate in the Greater Tokyo area in fiscal year 2012 was 90.3%, and in the Kansai region, it was 92.8%. By fiscal year 2022, the occupancy rate in Greater Tokyo had risen to 95.8%, and in Kansai, it was 94.9%. Considering the market recovery post-COVID, it is certain that this year’s occupancy rate will exceed those of 2022.

With this level of occupancy, rents are rising, but when the occupancy rate was around 90%, rent fluctuation rates were negative. The tipping point for rent increases and decreases is around a 93% occupancy rate.

Even with Population Decline, the Number of Households is Increasing Across Japan

It is often argued that in a country with a declining population and many vacant homes, there are too many new housing starts. However, from an outsider’s perspective, analyzing the situation completely different. First, regardless of population decline, the number of households is increasing across Japan due to changes in family structures and an increase in single-person households. There is a high likelihood that the number of households will continue to grow for the foreseeable future. When considering the housing stock, the demand is not based on population but on the number of households.

The growth in the number of households is especially significant in urban areas. According to the National Institute of Population and Social Security Research (hereafter, IPSS), the household growth rate forecast for the period 2015–2020 was 1.45% nationwide, but the actual increase was 4.45%, which is 306% (about three times) higher. Similarly, in Tokyo, the forecast was 3.46%, but the actual growth rate was 7.86%, which is 227% (about 2.3 times) higher.

How to Predict the Number of Households

The household growth rate forecast from the National Institute of Population and Social Security Research (IPSS) was 0.7% annually, while the actual growth rate was 1.6%. The forecasted 0.7% was lower than the 1.0% needed for supply and demand balance, so if you trusted this prediction, supply would have outpaced demand, and rent would have been expected to decrease.

However, with an actual growth rate of 1.6%, rent would be expected to rise. Since this is only a 5-year projection, the household forecast needs to be nearly accurate. In my work, I make population forecasts with a high degree of accuracy. This is because, instead of relying on the national census data, which is released once every five years, I use the Basic Resident Registration data that is released annually and monthly for my predictions.

For example, the 2015 national census results weren’t available until around 2017. If you use the Basic Resident Registration data, which is up-to-date by two years, you shorten the forecasting period to three years. Furthermore, by using annual data instead of the five-year intervals, you can improve the accuracy by a factor of five. Forecasting is a matter of “win or lose”—if the prediction is wrong, it causes problems for those relying on the data, so I do everything I can to ensure accuracy.

With the occupancy rate rising, if we don’t increase the number of new housing starts, we will either end up living in old houses that are on the verge of being demolished, with decades of dirt and the lingering smells from previous occupants, or we’ll be forced to pay higher rents. I believe we should build more new homes that meet current demands, and I even recommend that developers and homebuilders construct so many new homes that they worry about oversupply.

Will Rent Prices Continue to Rise in the Future?

The extraordinary monetary easing that began in 2013 inflated assets like real estate and stocks, but the targeted 2% increase in the Consumer Price Index did not materialize. Without wage increases, real wages have continued to gradually decline. In this environment, condominium prices have nearly doubled, and rent prices have begun to rise significantly.

The current surge in rent will not subside unless supply and demand conditions loosen. It will be difficult to reach an oversupply situation due to the rising construction costs, which are a headwind. Demand is unlikely to decrease significantly, given the continued trend of young people moving out of their parents’ homes and the inflow of foreign workers.

In this situation, the rising costs of rent only lead to worsened cash flow. On the other hand, if you buy a home, you don’t need to worry about rent hikes, and you can benefit from asset appreciation. Although the current price levels are high, if the situation continues to support asset inflation, you can avoid higher expenditures than rent by selling at the right time once prices start to decline.

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