Housing assistance measures amid rising interest rates and a declining population
― Financial support to encourage the accumulation of assets by prospective homeowners and the utilization of existing housing stock ―

In Japan, a mortgage tax credit and other measures to support homeownership are in place, with assistance mainly targeted at middle- and low-income groups who are relatively young in age. However, there are some challenges: 1) households have become more dependent on debt amid historically low interest rates, and 2) the housing stock (i.e., the number of existing homes) already exceeds the number of households due to preferential treatment for new construction in support programs.

On the other hand, the housing market and the homeownership environment for households are on the verge of turning a corner, as the following changes in the financial, economic, and social structures are currently taking place: - With the Bank of Japan looking to revise its large-scale monetary easing policy, interest rates may rise, increasing the burden of mortgage repayment. While a modest increase in interest rates would have limited impact on households, there is concern that the burden would be greater on middle- and low-income groups, the core of the homebuying population, as they have less disposable income to cover the higher repayments. - As the population continues to decline, the number of households is expected to peak in 2023. The gap between the housing stock and the number of households is likely to widen further. Issues such as the increase in the number of vacant houses could become serious social problems.

Given the above, the government needs to redirect the financial support measures it offers households to help them purchase homes as follows: 1) Pivot from debt repayment burden reduction to asset accumulation Interest rates have long been close to zero, but interest is likely to become a reality again soon, so homeownership support measures should encourage households to accumulate assets, so that, for example, they can make down payments at the time of purchase, thereby reducing their dependence on debt. 2) Shift from preferential treatment of new construction to utilization of used homes Steps should also be taken to promote the use of existing homes, the deal number of which is much less than new homes, as high-quality properties worth living in, and homeownership support measures for households should be designed to ensure that equal assistance is provided for the purchase of both new and used homes.

Looking overseas, the Lifetime ISA scheme in the U.K. has many aspects that can serve as reference points for designing housing support measures for Japan that would encourage households to build up their assets and promote the use of existing homes.

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