Why Japan Has a Housing Shortage Despite High Vacancy Rates

The Housing Shortage Is a Bigger Problem Than the Vacancy Count

Even though Japan’s population is shrinking and the number of vacant homes keeps rising, the housing market shows an increasingly serious paradox: a housing shortage. This is especially visible in major cities such as Tokyo and Osaka, where rents and property prices keep climbing, pointing to a structural imbalance between housing supply and demand.

Population Decline and Changing Household Structure: The Hidden Driver of Rising Demand

Since Japan’s population began declining in 2008, it had fallen by about 0.41% by 2023. Even so, a significant shift in household structure has pushed housing demand up. According to the data, between 2022 and 2023 the total population fell, yet the number of households actually grew by 0.85%. Three main drivers sit behind this:

1. Rapid growth in single-person households. More young people are choosing to move out of their parents’ homes and form single-person households. Among people aged 20 to 34, the number of single-person households has grown by about 15% over the past five years. This trend directly increases demand for small apartments.
2. Divorce and the rise of solo living among older people. In 2023, divorce created more than 180,000 new households. In addition, as the older population grows, more elderly people live alone after the death of a spouse — more than 800,000 new elderly single-person households form each year, further increasing demand for small housing.
3. The long-term effect of a low birth rate and declining marriage rate. Japan’s low birth rate and rising rate of never-marrying adults are shrinking average household size, creating more households that need single or small housing units. This long-term effect keeps reshaping housing demand.

Vacant Homes and the Housing-Shortage Paradox: The Roots of a Structural Imbalance

A continually rising number of vacant homes has not eased the housing shortage — if anything, it has exposed a structural mismatch between supply and demand.

1. Where vacant homes are, and their condition. Japan currently has more than 8 million vacant homes, over 13% of all housing nationwide. But most of these vacant homes are in remote or non-urban areas, where they cannot meet the housing needs of the urban population. Many are also in poor condition due to age or a poor location, making them impractical as an actual place to live even at a low price.
2. Insufficient housing supply in major metropolitan areas. In cities such as Tokyo and Osaka, demand for small apartments far outstrips supply capacity. In 2023, about 800,000 new homes were built nationwide, but in the same year around 300,000 homes were demolished or left vacant, so the real net increase in supply was limited. At the same time, real estate developers remain cautious about large-scale new development, further constraining the market’s expansion.
3. Misplaced policy focus. For years, the government has focused on encouraging the reuse of vacant homes, with limited effect. Despite policy subsidies and tax incentives, the high cost of renovating a vacant home discourages many potential buyers. In addition, policy support for new housing construction within metropolitan areas has been relatively insufficient, failing to effectively ease the housing squeeze.

The Real Impact of Rising Rents and Prices

Against this backdrop of housing shortage, rents and prices keep climbing. In 2023, Tokyo rents rose about 7.5% year over year, adding to the burden on young people and single-person households, and creating challenges for companies trying to attract foreign talent as well as for older residents.

How Should Investors Choose a Property, Given This?

For investors facing Japan’s “shortage versus vacancy” paradox, a few strategic points are worth considering:

1. Favor small housing units within major metropolitan areas. The trend toward single-person and smaller households will continue, and demand for small housing remains particularly strong in major metros such as Tokyo and Osaka.
2. Consider vacant-home renovation opportunities. With policy support, renovation projects for vacant homes in remote areas may carry upside potential, but renovation costs and surrounding infrastructure need particular attention.
3. Focus on growing demand from foreign residents. As the foreign resident population grows, choosing property in areas with foreign-resident clusters, or property suited to renting to foreign tenants, may be a source of steady long-term returns.
4. Watch the direction of policy. If the government further supports urban housing supply in the future, specific new-construction zones may become hotspots for real estate investment.

Readers who want to follow these market dynamics in more depth, in Japan or other overseas markets, can look for Zagdim’s ongoing market research and data coverage, typically offered as a low-cost monthly subscription, to help track trends and make more informed decisions in a competitive property market.

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