Land Boom, and the Japanese Mentality

November. 1987 / TOKYO Business Today

So finally Japan is waking up to the fact that its silly, vicious little land boom is no longer a joke. People are suffering. A lot more will suffer in the future. And so today, just three years too late, committees are being formed, NHK is running special programs, and the politicians who did absolutely nothing when action was needed are now promising immediate and drastic solutions.

But if the ideas put forward to date are any guide, don't hold your breath waiting for those solutions. When it comes to an emotional subject like land, that strange Japanese ability to confuse results with causes, lose the thread of an argument and generally act muddle-headedly comes into full play.

For example, the main proposal so far is simply to slap a freeze on land prices. This would of course create a paradise for gangsters and other shady dealers, as sellers moved massively to the illegal double contract, or ura keiyaku, system already in use to avoid land sale taxes. A freeze would also set the seal of official approval on the corrosively damaging tochishinwa - the myth that in Japan at least land prices are fated to keep on rising for ever.

Then there is the idea that all land deals should be controlled. So the land price boom, which was triggered three years ago by Mr. Nakasone's brave words about how liberalisation of land prices would lower land prices, is now supposed to be ended by a welter of communist-style anti-liberalisation. In fact, liberalisation was the right answer, if it had been accompanied by the right land tax policies.

The next idea says ban the sale of government land. These sales are supposed to fan speculative fever. Only in Japan would you find a logic that says you reduce the price of a commodity by reducing, not increasing, its supply.

Then there is the school that says the farmers are to blame. Stop their subsidies, raise their land taxes, force them out of their unprofitable rice fields and Japan will have access both to the building land it needs and to imported food. But have the geniuses involved in this scheme ever seen a rice field ? Most of those fields are very far from any city. As for the farmers near the big cities, they are not likely to sell out and so lose massive speculative profits just because their subsidies have been cut or land taxes have risen a little. And as for the farmers in the cities, they do at least provide free of charge some badly-needed fresh air and greenery.

In any case the main cause of high land prices is not misused farm land. It is misused urban land. The low rate of urban land holding taxes - about 0.2 percent of real prices - and the very high rate of land sale taxes guarantees that no one in his or her right mind would ever want to sell land. They will hold on for ever, reassured in the belief that land prices will go up for ever. And they do not hold on to fresh air and greenery. They hold on acre after acre of drab, two- story urban slum crying out for highrise development.

In this situation the solution should be obvious - raise land holding taxes for urban land and cut land sale taxes. With one stroke you improve both land us- age and land supply. You also improve government revenue.

But in Japan the logical answer is not necessarily the right answer. Land holding taxes are already too high, the pundits say, as they drag out emotional stories of grandmothers forced to sell out to pay their taxes just because the land on which they have lived for the last 50 years is now worth a ridiculous 500 million yen or so. The idea that maybe the grandmothers have to pay high taxes today because in the past the tax rate was too low would be wasted on these people. Even the argument that the higher land holding tax rates could easily be matched by lower municipal rates makes little impression on the grandmother school.

True, one or two other needed measures are finally being considered, like restricting easy bank financing for speculative land deals and rethinking the role of Tokyo. But most shy away from the hard answers. Instead of being required to cut land loans to a fixed and low percentage of contract prices, the banks are simply requested to behave themselves. Instead of a bold plan to fill in Tokyo Bay, or at least to make better use of its shoreline, most simply argue that someone other than themselves should be relocated to Osaka, or Hokkaido, or their own electorate.

The emotional irrationality of the current land debate has a wider meaning: If the Japanese cannot sensibly solve a problem of such obvious importance to themselves as land, should we be too surprised if they are somewhat slow in solving our trade problems? Most Western thinking has assumed that the Japanese set out deliberately to invade the world with their products and to shut out foreign products - the so-called Japan problem. But maybe it is muddle rather than malice that causes most of that problem.


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