Expectations for rising interest rates and higher construction costs have dented Japanese housing stocks. However, we think the market is missing the increasing role that incomes are playing on rents and home prices. We expect higher wages, growing dual income household population, and net inward migration to drive rents and home prices higher in the coming years, despite higher rates.

Prices & rents should grow where working women and immigrants like to live

Our study shows the housing price cycle in Greater Tokyo over the past 20 years has been mainly driven by homebuyer leverage levels, but income growth has recently become a stronger factor, and is likely to be key in the future. Central Tokyo and other convenient suburban areas should attract an increasing number of dual-income households from the viewpoint of commuting convenience. In many cases, these households have jobs at large companies with sharp salary growth, and female spouses are enjoying more job opportunities with salary growth, resulting in further household income growth. With more foreigners immigrating to the area, we expect more population growth in Greater Tokyo in the future. These theories also apply to rents.

Rent growth, raising home prices, ZEHs (Zero Energy Homes) and de-Japan are key

On the other hand, higher mortgage rates may cause homebuyers' leverage levels to adjust, which could work negatively for home prices. For developers and homebuilders, margin deterioration due to rising construction costs is also a problem. Therefore, location is crucial for raising home prices enough to absorb these negatives.

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