Tokyo’s Property Boom is a Warning, Not a Crisis

This article first appeared in Nikkei Asia on July 7, 2026.

Japan can still preserve housing affordability and stability with close coordination among relevant agencies

Japan’s metropolitan housing markets are attracting renewed attention amid rising real estate prices, returning foreign investor interest and mounting affordability pressures. In Tokyo, residential land prices have risen sharply, and the housing market remains robust. Since the early 2020s, the gap between housing prices in major metropolitan areas such as Tokyo and Osaka and those in regional areas has widened significantly.

Yet Japan today is not reliving the excesses of the late-1980s asset bubble.

The question facing policymakers is more nuanced: How to prevent a localized property boom in the major metropolitan areas from evolving into broader macro-financial risks while preserving housing affordability?

The rise in residential land and housing prices reflect a combination of both powerful demand-side and supply-side forces.

Demand has remained strong as migration into major metropolitan areas continues, foreign investor interest supports market activity, and rising wages have strengthened purchasing power among households. At the same time, housing supply has struggled to keep pace due to labor shortages in the construction sector. Price pressures arising from rising material costs could become more pronounced amid higher energy and input costs following the escalation of tensions in the Middle East.

Importantly, at the national level, there are few signs of widespread financial distress. Credit quality remains sound, household debt-servicing risks appear manageable, and nationwide price-to-income ratios remain broadly in line with OECD averages. Meanwhile, population decline outside major metropolitan areas may continue to exert a moderating influence on overall housing demand.

However, the absence of a nationwide bubble does not mean the absence of policy risks.

Sharp increases in housing prices in major metropolitan areas could still create macro-financial vulnerabilities over time. Rising housing prices, which are not supported by underlying economic fundamentals, could result in excessive consumer leverage and credit growth. Moreover, it could increase geographically concentrated real-estate exposure among financial institutions. Soaring housing prices outpacing income growth in metropolitan areas could also worsen affordability. In major metropolitan areas such as Tokyo, average households increasingly face barriers to home ownership.

Several advanced economies have adopted targeted and differentiated approaches to managing housing market risks. Singapore, Korea and Canada have combined macroprudential, fiscal and housing supply measures to contain excessive speculation while preserving broader market stability and affordability.

Singapore, for example, introduced successive and gradual rounds of property-cooling measures over many years, including tighter loan-to-value limits, debt-servicing rules and additional stamp duties targeting speculative and foreign demand. Korea similarly adopted differentiated measures according to the degree of overheating across districts, particularly in Seoul. Canada introduced higher taxes on foreign buyers in provinces facing stronger housing pressures.

A common feature of these approaches is the use of a policy mix designed not only to contain macro-financial risks in the metropolitan property market, but also to safeguard housing affordability. Additionally, the authorities in these countries typically establish close inter-agency policy coordination, surveillance and information sharing. While Canada has adopted a more informal structure with regular inter-agency meetings, Korea and Singapore have established a more structured inter-agency taskforce.

Japan does not need to replicate these policies in their entirety. Its demographic profile and housing market structure are distinctive. Population decline in regional areas coexists with continued inflows into major metropolitan areas, creating highly uneven housing market conditions across the country.

Nevertheless, international experience offers useful lessons for Japan.

First, the government could establish an appropriate inter-agency coordination framework among relevant agencies, including the central and local authorities. This could result in better coordination, surveillance of housing market-related risks, assessment of housing affordability and information sharing among relevant authorities. This institutional arrangement could also support the preparation of coherent policy measures as and when needed. Recent initiatives by the Ministry of Land, Infrastructure, Transport and Tourism to publish survey results on short-term condominium resale activity in urban areas are important steps in this direction.

Second, policymakers should adopt a more targeted and differentiated approach that reflects diverging demographic and housing market trends across the country. Population growth in major metropolitan areas and depopulation in regional areas require different policy responses. If policy intervention becomes necessary, a gradual and carefully calibrated approach would help minimize the risk of unintended market destabilization.

Third, housing affordability deserves greater policy attention. Recent local government initiatives are encouraging. Chiyoda Ward, one of Tokyo’s 23 wards, has proposed measures such as resale restrictions and limits on multiple-unit purchases to discourage speculative transactions. The Tokyo Metropolitan Government has also introduced initiatives to expand affordable housing supply through public-private partnerships.

Finally, Japan’s housing challenges increasingly reflect structural supply constraints. Labor shortages in the construction sector, compounded by population aging, suggest that improving housing supply responsiveness may become as important as demand-side policies in supporting a sustainable property market.

In sum, the objective should not be to suppress growth in Japan’s metropolitan property markets. Rather, as demographic change reshapes the country’s housing landscape, maintaining stability and affordability will become increasingly important objectives. A stable housing market should foster not only macro-financial stability but also provide housing options that meet the diverse needs and preferences of residents.