How Japan Keeps Housing Affordable — Practical Lessons for the U.S.

I don’t own a home. In fact, I don’t even sleep in one. Houses are so expensive in many U.S. cities that, while saving for a down payment, I once bunked in an office ventilation alcove to cut costs.

Why U.S. Housing Is So Costly

U.S. housing policy is pulled in two incompatible directions. On one hand, we treat owner-occupied housing as the primary vehicle for building household wealth. On the other, we say we want housing to be broadly affordable. The simple economic truth—supply and demand—means those goals collide: a home cannot be both an indefinitely appreciating investment and an inexpensive place to live.

Public Policy That Favors Homeownership

Over the 20th century, federal policy actively promoted homeownership as a public good. New Deal-era programs expanded subsidies, loan supports, and tax incentives to make buying a house easier. Those incentives persist today:

• Mortgage Interest Deduction: Interest on up to $750,000 of mortgage debt is deductible from federal taxes (limits apply).
• Property Tax Deductions: Much local and state property tax can be deducted on federal returns (subject to caps).
• Mortgage Guarantees: Federal backing of 30-year mortgages reduces perceived lender risk and lowers interest rates.
• Capital Gains Exclusion: When you sell a primary home, the first $250,000 of profit (or $500,000 for married couples filing jointly) is exempt from capital gains tax.

Combined, these incentives amount to roughly $150 billion per year in subsidies that favor homeowners over renters.

Local Rules and the NIMBY Effect

Once homeowners accumulate equity, they have a strong incentive to protect it. New or cheaper nearby housing can depress surrounding values, so many localities use zoning and land-use regulations to limit new supply. Across the United States, nearly 90,000 local jurisdictions apply rules—minimum lot sizes, single-family zoning, height limits, historic-preservation overlays, bans on multiunit buildings, and strict density caps—that together constrain construction and keep prices high.

Japan’s Different Approach

Japan treats housing more as a commodity that depreciates than as a guaranteed wealth vehicle. Key differences include:

• Depreciation Recognized: Japanese tax rules allow homeowners to depreciate house value like a business asset; the recorded value declines as a building ages.
• Simpler, National Zoning: Japan uses only 12 zoning categories nationally, set by the Ministry of Land, Infrastructure, Transport and Tourism. Builders don’t face dozens or hundreds of local rulebooks as they cross municipal lines.
• Smaller Units Accepted: Microapartments in Tokyo can be as small as 50 square feet and rent for roughly $500 a month, offering an extremely low-cost option for single occupants.
• Streamlined Approvals: If a project complies with the building code, it is typically approved. There are fewer protracted public-comment processes, fewer litigation-prone environmental reviews, and rarer retroactive historic overlays used to block construction.

Outcomes and Comparisons

Because Japan permits more and faster housing production, supply is less constrained and prices are lower. Japan builds roughly five times as many homes per capita as California. Average one-bedroom rents illustrate the contrast: about $4,000 in New York City, $3,000 in San Francisco, $2,000 in Chicago, and around $1,100 in Tokyo.

Policy Takeaways for the U.S.

If the goal is abundant, affordable housing, the United States must reconsider policies that make the primary purpose of homes to be wealth accumulation. Practical lessons from Japan include:

• Recognize residential property depreciation in tax policy instead of treating every home as an ever-appreciating asset.
• Simplify zoning and reduce the patchwork of hyperlocal rules that block construction.
• Allow and encourage smaller, lower-cost units as an alternative to homelessness.
• Streamline building approvals for projects that meet objective codes to reduce delay, litigation, and discretionary blocks.

Supply and demand are not optional. If the U.S. wants more affordable housing, it must be willing to loosen local barriers and adopt policy tools that prioritize housing availability rather than treating every home primarily as an investment vehicle.

Bottom line: America can learn from Japan’s pragmatic, supply-focused approach that accepts housing as depreciating and eases rules to expand construction—policies that can help lower rents and increase options for residents.