MLIT reported last week that housing starts were up 5.8% in June. This marks the third straight month of increases after the March 11th earthquake. In April starts were up 0.3% and 6.4% in May. The June figures received a large boost from the condo sector as it was up 47.9%. Rental housing starts were up 4.6%. This was the first increase in nine months for rental units.
While shortages of plywood and other materials delayed construction across the country in March and April, the strong rebound since then indicates that there is still strong demand amongst consumers despite uncertainties in the overall economy resulting from the earthquake as well weak overseas markets. Some of this demand is being driven by the combination of historically low interest rates along with fears of a consumption tax increase as the Japanese government looks for ways to pay for reconstruction while also getting its deficit under control.
The government has not yet unveiled any specific plans or schedule for an increase, but there has been speculation that it could rise from the current 5% to anywhere from 8% to 15%. A significant jump would have a strong negative impact on housing starts, so some large home builders are already calling on the government to include at least a partial exemption on housing.
Aside from the tax hike fears, many industry people see the recent increases in starts as simply a recovery from the lows caused by the after-effects of the “Lehman Shock” in 2007. A recent report published by the Nomura Research Institute predicts that housing starts will continue to increase through 2015 and peak at 841,000 that year (in 2010 they were 813,126) . After that demographics combined with longer lasting homes will force starts to decline. However, even with such downward pressure, Nomura believes that starts will still be at the 785,000 level even in 2023.