In Canada and Australia, rents have surged, particularly in major urban areas.
In many countries that have pursued aggressive immigration policies, real estate prices and rental costs have surged, particularly in major metropolitan areas. When population growth accelerates due to immigration, housing demand increases immediately — but housing supply cannot expand at the same pace. This structural imbalance between supply and demand often leads to sharp rent inflation.
Japan’s Rising Foreign Population and Housing Demand
In Japan, the net increase in foreign residents over the past year has exceeded 360,000. When converted into household units, this population growth translates into demand for at least 200,000 additional housing units.
This raises an important question for policymakers and investors alike:
How would Japan’s rental market have performed without this surge in foreign population growth?
To better understand the potential impact, it is useful to examine international case studies where immigration-driven demand has reshaped housing markets.
Canada: Immigration and a 20%+ Rent Surge
In Canada, rents have risen sharply since 2021. Between April 2021 and November 2024, average rents increased by approximately 20.5%. The pressure has been particularly severe in major urban centers such as Vancouver and Toronto.
The key drivers of Canada’s rental crisis include:
- Rapid population growth from immigration and international students
- Insufficient housing construction
- Mortgage rates in the 4%–6% range, discouraging homeownership
- Increased reliance on the rental market
Although the Canadian government introduced a one-time CAD $500 rental support payment for low-income households, this measure had limited impact on overall market pricing. Structural supply shortages remain unresolved.
Australia: Urban Rent Growth and Tight Vacancy Rates
Australia offers another example of immigration-driven housing pressure. Despite its large landmass, habitable areas are concentrated in coastal metropolitan regions. As a result, cities such as Sydney, Brisbane, and Perth have experienced significant rent increases.
In 2025:
- Annual rent growth reached 5.2%
- Average weekly rent across eight major cities exceeded AUD 700
- Rents rose 44% compared to pre-pandemic levels
- Vacancy rates fell below 1.5%
These figures reflect a severe housing supply shortage caused by population growth outpacing construction.
Comparing Foreign-Born Population Ratios
Foreign-born population ratios highlight important structural differences:
- Australia: 30.4%
- Canada: 22.2%
- Japan: 2.8%
While Japan’s foreign resident ratio is significantly lower, Japan faces unique constraints:
- Limited habitable land area
- High urban population concentration
- Slower housing supply expansion
- Regulatory and construction bottlenecks
This means that even modest increases in foreign residents can exert measurable pressure on urban rental markets.
Immigration Policy and Housing Supply: A Structural Link
International evidence suggests a consistent pattern:
- Immigration increases population growth.
- Housing demand rises immediately.
- Housing supply lags due to construction constraints.
- Vacancy rates decline.
- Rents and property prices increase.
Policies designed to attract labor and capital through immigration must therefore be accompanied by proactive housing supply expansion. Without adequate land release, zoning reform, and accelerated construction, rental inflation becomes structurally embedded.
Implications for Japan’s Rental Market
As Japan’s foreign resident population continues to grow, understanding the relationship between immigration, housing demand, vacancy rates, and rent growth becomes increasingly important.
If housing supply fails to keep pace, Japan could experience:
- Rising urban rents
- Lower vacancy rates
- Increased competition for rental units
- Greater affordability pressure in major cities
The experiences of Canada and Australia demonstrate that immigration-driven population growth can significantly impact rental markets when supply constraints persist. For Japan, the key policy challenge lies not in population growth alone, but in aligning immigration policy with sustainable housing supply expansion.
Rents are rising in more than two-thirds of Japan’s prefectures.
The number of foreign residents in Japan began rising in 2012. Over the 13 years since then — including the COVID-19 period — the population has increased by 1.9 million. This represents an average annual increase of approximately 146,000 people. In housing terms, that translates into demand for more than 80,000 additional rental units per year.
Growing Rental Demand in Japan
Japan has approximately 16 million renter households. An additional 80,000 households per year equals about 0.5% of the total rental housing market. If occupancy rates increase by 0.5 percentage points annually, that results in a 6.5 percentage-point rise over 13 years.
In a rental market that originally operated at around 90% occupancy, exceeding 95% dramatically shifts supply-demand dynamics. High occupancy reduces available units and puts strong upward pressure on rent prices across Japan.
Vacancy Rates and Their Impact on Rent Prices
The impact becomes clearer when looking at vacancy rates:
- A drop in vacancy from 10% to 5% effectively halves available rental inventory.
- When vacancy rates fall below 7%, rents typically begin to rise.
- In the past, rents often declined by around 1% per year as properties aged.
Today, however, investor reports from Japanese real estate investment trusts (J-REITs) show that rents for the same unit have increased by more than 10% over an average four-year tenancy — despite the property aging by four years. With rent growth accelerating, recent annual increases are estimated at close to 4%.
Excessively high occupancy rates are now a key driver of Japan’s rent surge.
Rent Increases Across Japan — Not Just in Major Cities
Rents are now rising in more than two-thirds of Japan’s prefectures. This trend is no longer limited to Tokyo, Osaka, or other major metropolitan areas. Regional rental markets are also experiencing upward pressure due to tightening supply.
Immigration and Housing Policy: The Core Issue
Had Japan not accepted 1.9 million additional foreign residents over the past 13 years, rental demand would likely have grown at a slower pace. However, rent increases cannot be attributed solely to immigration. There is also a structural mismatch between housing supply and tenant needs in Japan’s rental market.
That said, housing prices and rents are fundamentally determined by supply and demand. If policymakers anticipate rising housing costs, there are only two primary solutions:
- Reduce the inflow of new residents, or
- Increase housing supply.
If labor market conditions make it difficult to limit immigration, expanding housing supply becomes the essential policy response.
Japan Housing Supply Shortage: Declining Housing Starts
Increasing housing supply is easier said than done. Japan’s housing starts have been declining rather than rising in recent years.
In 2025, total new housing starts nationwide fell to 740,667 units — a 6.5% year-on-year decrease and the third consecutive annual decline.
Several factors contribute to this housing supply shortage:
- Labor shortages in the construction industry
- Higher profitability in hotel and office building projects compared to residential developments
- Rising construction costs per unit
As a result, residential housing projects have fallen in priority for many construction companies.
Rising Construction Costs and Limited Building Capacity
Despite continued monetary easing and increased development funding, construction costs have risen sharply. When adjusted for higher building costs, the number of housing units and total floor space that can be developed has effectively declined.
Even if more capital were injected into the market, the construction sector is already operating near full capacity. This structural limitation makes it difficult to rapidly expand Japan’s housing supply — further intensifying rent increases.
Japan’s Rent Growth Is a Supply-Demand Issue
Japan’s rent increase is primarily the result of rising rental demand combined with constrained housing supply. Growing foreign resident populations, declining housing starts, high occupancy rates, and construction labor shortages have collectively tightened the rental market.
Without a significant expansion in housing supply, upward pressure on rent prices in Japan is likely to continue.
Can Japan make better use of its existing housing stock nationwide?
Although Japan’s housing shortage may seem like a dead end, there is a practical solution that does not rely solely on new construction: better utilization of existing housing stock.
Japan’s 9 Million Vacant Homes: An Untapped Resource
Japan has an unusually large number of vacant homes. According to the Ministry of Internal Affairs and Communications’ 2023 Housing and Land Survey, the total number of vacant homes nationwide reached a record high of approximately 8.995 million — nearly 9 million units.
Despite this massive housing inventory, much of it remains unused and economically inactive.
The primary reason is inheritance. More than 50% of vacant homes are detached houses inherited from parents. After inheritance, many of these properties are left unused or converted into storage space.
Why does this happen?
- Inherited homes are often not cleared, demolished, or sold.
- Heirs frequently receive financial assets along with the property.
- Property taxes in Japan are relatively low.
- There is no immediate financial pressure to liquidate or redevelop the property.
As a result, millions of homes remain idle, even as rental demand increases across the country.
Lessons from the U.S.: The UPREIT Model
In the United States, a mechanism known as an “UPREIT” (Umbrella Partnership Real Estate Investment Trust) has helped unlock real estate assets.
Under this system, property owners can contribute real estate holdings to a REIT in exchange for partnership units while deferring capital gains taxes. This tax deferral incentive has facilitated large-scale transfers of rental housing into publicly traded real estate vehicles.
The key lesson is simple: when there are clear financial incentives to sell, real estate becomes more liquid.
A Proposal: Temporary Capital Gains Tax Relief on Inherited Property
Japan could adopt a similar approach by temporarily eliminating capital gains taxes on inherited property sales.
This proposal is particularly relevant because:
- Many inherited properties were acquired decades ago.
- Land prices in metropolitan areas have risen significantly in recent years.
- Unrealized capital gains can be substantial.
For example, if an inherited property generates a capital gain of 20 million yen, the typical tax rate of around 20% would result in roughly 4 million yen in taxes. Removing or deferring this tax burden would create a strong incentive to sell.
To manage transaction volume, the government could:
- Introduce annual caps on eligible sales (first-come, first-served basis), or
- Provide subsidies equivalent to the tax savings if direct tax exemption is politically difficult.
The core issue is whether policymakers are committed to expanding Japan’s effective housing supply.
Increasing Rental Housing Supply Without Massive New Construction
If inherited properties are sold and redeveloped, several positive effects could follow:
- More land becomes available for rental housing development.
- The rental housing supply increases.
- Housing market liquidity improves.
If construction capacity is limited due to labor shortages, projects could be outsourced to detached-home builders currently facing reduced new housing starts. Alternatively, modular and container housing solutions could provide rapid, temporary supply expansion.
Housing Policy Must Prioritize Affordability
Housing is a fundamental human necessity. Alongside food, shelter is essential for survival.
Policies that increase the labor force while allowing housing costs to surge place an excessive burden on citizens. A sustainable immigration and labor policy must be paired with a realistic housing supply strategy.
Japan’s housing affordability crisis cannot be addressed by maintaining the current real estate framework alone. Unlocking vacant homes, reforming capital gains taxation, and improving housing market liquidity are urgent steps.
Without bold and immediate action, rising rents and housing shortages will continue to intensify across Japan.
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