Mount Fuji

Shoddy, corrupt industry holds all cards...
Home-buyers in Japan up against a stacked deck

by MARK MAGNIER

(This article was first published in the Los Angeles Times of March 6, 2002)

SANBU, Chiba Prefecture — Homeowner Nagako Itoga lifted up a tatami mat to reveal a corner beam of her ¥32.5 Million house almost completely detached from the foundation. Then she pointed out the unsound roof supports, tilting hallways and floorboards so rotten the ground is visible below.

"I'm so angry with this atrocious construction, I considered lighting myself on fire with kerosene in front of the government building," she said "But my daughter pointed out that it would be far better to stay alive and fight those responsible for this mess."

In any country, the family house is the bedrock of emotional and financial security. But it has turned into an albatross for many here. It's bad enough that deflation has eaten at land values over the last decade. Now, many thousands are finding that government policies and construction industry practices leave their houses worthless in as little as 15 years.

The wake-up call was the magnitude 7.2 earthquake that slammed Kobe in early 1995 killing 6,400 people. As workers cleared the rubble left by some 440,000 collapsed buildings, it soon became apparent that many new houses built by name-brand Japanese developers had collapsed while older houses, including many using foreign construction materials and methods, stood firm.

In 1996, the Japan Consumer Information Center received more than 3,400 housing- quality complaints, a doubling of pre-earthquake levels, and the phones haven't stopped ringing. Tokyo last April opened a dedicated housing court where more than 300 cases are pending.

"This is a country where I well-made Japanese buildings made by master craftsmen are still standing 1,300 years later," said Gaku Itoh, director of Gaku Architectural Institute, a consumer watchdog group. "But developers are only interested in cutting costs and driving up profits, so quality's gotten worse and worse. And the construction ministry," he added, "is in league with the builders."

Regulations and industry practices encourage home ownership, but they also channel buyers to new homes rather than pre-owned ones. New-house buyers get mortgage deductions and other tax breaks not available to second or third owners. Only 11 percent of home sales in Japan are for pre-owned houses, compared with 76 percent in the United States.

Once houses start to fall apart, generally within a couple of decades, they're essentially thrown away. In some cases, the mortgage outlasts the house. The average life of Japanese house is 26 years, compared with 44 years in the United States. And aggressive government-backed lending policies for new homes — as low as 2.75 percent for the first 10 years of a 35-year term — make it easy for buyers to get in over their heads. In the United States, buyers can hand the keys to the bank if the value plummets. Borrowers in Japan don't have that option — they are personally liable for the full amount.

Homemaker Yumiko Uchida, 41, living in a defective house in Itoga's neighborhood near Narita airport, lays a golf ball on her floor that quickly picks up speed on the 2.8 percent slope before knocking into the opposing wall. Upstairs, a plumb line hanging from the top of the doorway is 5 cm askew by the time it reaches the floor.

The Uchidas paid Y36.4 million for their house in 1992 and owe Y18.98 million on the mortgage. "It's now worth maybe V4.94 million, if anyone would even buy it," said the mother of two.

The trauma over their failed investment has left her husband, who commutes four hours a day, physically and mentally weak. "He spends his weekends in the hospital," she said. "We feel like prisoners here with no escape."

Often, as houses approach their 20th birthday, they're worth less than zero given the Y1.3 million cost of breaking down and carting away structures nobody wants.

"It's been a continuous cycle of scrap and build," said Fumio Shinohara, senior researcher with NLI Research Institute, a think tank.

Consumers who complain about sagging walls and faulty construction soon hit a wall of their own. Consumer complaints are frequently channeled into an industry-government committee. The construction industry is a huge national employer, a major political fundraiser and often hires construction ministry bureaucrats after retirement. As if that didn't stack the deck, consumer groups say the industry has traditionally had a major role in writing the regulations governing its practices.

Once consumers lodge their complaint with the committee, they give up their right to sue, further undermining their leverage. The construction ministry meanwhile doesn't disclose to prospective buyers which developers are the subjects of frequent buyer complaints on the grounds that this would undermine the company's privacy rights.

"Individuals may need privacy, but huge companies don't. That's ridiculous," said Mitsuru Toyoda, owner of a condominium near Yokohama who is involved in a lawsuit with developer Mitsui Real Estate Co. "It's like an ant trying to fight against an elephant."

Those such as Toyoda and is wife, Hitomi, who take their grievances to court, find themselves in expensive, time-consuming fights that leave the burden of proof on the consumer.

Under civil law, consumers have only five years to sue, oven though structural flaws may not show up for a long time. There's no discovery process which allows both sides to gain access to key facts, leaving consumers to fight against corporations with their armies of engineers, technical details and expert mumbo jumbo.

Construction ministry officials and developers concede there are systemic shortcomings but deny any special relationship with each other. They point to recent improvements, including a quality assurance law enacted in 2000, and a new inspection system. There are few penalties on developers for non-compliance.

"In Japan, not just in the housing industry, there's been a tendency to support the companies, not the consumers, and to focus on quantity over quality," said Shin Honto, secretariat head of the Land, Infrastructure and Transport Ministry's dispute committee.

"There wasn't really any mechanism to hear or reflect consumer voices. It's not a good system, so we're trying to change it."

"Add these factors up," said Keio University professor Haruo Shimada, an economic adviser to Prime Minister Junichiro Koizumi, "and you have a huge reason why Japanese aren't spending and don't feel confident about their future.

"People are really scared about being unable to sell their houses," he said. "They're afraid of losing their entire fortunes. It's a disaster."

Even those with well-built homes face a tough time reselling. Sale prices aren't public, there's no multiple listing service, no tradition of independent inspections and no public tax records, making it difficult to gauge the market.

Although exact comparisons are difficult given the difference in land prices, Tokyo residents pay more than twice what their Los Angeles counterparts do for a house that's 25 percent smaller. The gap for condo purchases is even greater. The average city dweller has a ¥98.8 million outstanding mortgage on a property worth half that.

Rigid rules lock people in, preventing the growing elderly population, for instance, from moving into smaller units closer to hospitals and public transportation.

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