TOKYO Business Today / September 1986

Flipping through the real estate ads the other day (they come stuffed in my morning paper) I found one rather louder than the rest. It said that for 300 million yen I could buy 200 square meters of very ordinary residential land in a very ordinary suburb an hour from central Tokyo. They were so proud of this particular 'deal' they even had a photo of its weeds and scruffy surroundings.

If I wanted to go upmarket they had another 'deal'.This time it was 700 million yen for a slightly bigger block in a slightly better suburb. 300 million yen; 700 million yen ! Does anyone out there really understandwhat these prices mean? Does anyone really care ?

Land Price Madness

For the past year or so this writer has been watching Tokyo's land price spiral with the fascination of avictim about to be bitten by a cobra. One knows the situation is crazy. One knows great damage will result.But one is quite unable to do anything about it.

It was bad enough when commercial land in central Tokyo began last summer to spiral into the oku en bracket, or more than 100 million yen per tsubo (3.3 square meters). But now the madness has spread to residential land. Japan will soon be divided into twoclasses - those who own land and those who don't.

Talk to the Japanese about all this and they will carry on about how Japan is so small and the people are so many. They see high prices as inevitable. But that is nonsense. Japan has a lot of land, so too does its cities.Within a 90 minute commuting distance of its center, Tokyo, thanks to its excellent train services, has more land than any other major world capital.

But Tokyo also has more unused or badly used landthan any other major capital. Even today they are still growing cabbages on waste land between Aoyama and Roppongi. Only ten minutes out of Shinjuku and you are into market gardens. And on every side we see the acres of mean, two-storey sprawl that should have been replaced by high rise years ago.

Singapore has much less land per head than Japan.But thanks to some intelligent land policies most of its citizens have much more housing space than the average Tokyoite has.

Protection of Urban Farmers

Why isn't land used better in Japan? Because of avery unintelligent tax system that says people remain virtually untaxed if they hold on to land, particularly undeveloped land, but should be taxed viciously if they ever try to sell it. The government says it would be unfair to tax the urban farmers and the mums and pops whose only crime has been to sit for the past generation or so on a small piece of land now worth billions of yen.

But to prevent speculators from taking advantage of this situation they will tax heavily land sale profits.The result? A bonanza for the speculators. Land prices rocket since most of them can find dodges to avoid paying land sales tax.

On top of all this is the emotionalism of Japan's speculators. If prices are likely to go up tomorrow why not push them up today. Don't worry if economic yields are close to zero, or negative even. Something might happen tomorrow to change things. This attitude has already turned the Tokyo stockmarket into an international casino, with PERs now well into the 40's The same thing is now happening to land.

Advantages of Land-Holding Tax

But while a government can ignore stock markets it must do something to keep land markets under control. Otherwise housing and public works are choked off. In its wisdom the government has said it will relax building controls, so land can be used better. The result? Yet another round of land price increase, as speculators dream of how they can actually earn some income from the land they crave.

A sensible land tax system would put an end to this nonsense overnight. It would also solve a lot of other problems. More housing and public works would help Japan shake off its dangerous export dependence. And a rating system on land such as we have in the West would help local authorities to get the money they need for roads, sewage etc, instead of having to depend onunfair income taxes and government handouts. Most ofall it would make Japan a much nicer place for its citizens to live in.

In Japanese they say isseki nicho, or one stone two birds. A land-holding tax would be isseki gocho, or five birds with one stone. Gocho also means five trillion yen, which happens to be a good estimate of the revenue the authorities could gain from a land-holding tax. This amount of revenue would allow the government to drop for ever its ideas of a cumbersome VAT scheme to solve current fiscal problems. So instead of five birds, let's make it six.

TOKYO Business Today / September. 1986


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