Lessons in Housing: What America Can Learn from Japan

I dont own a home, and in fact, I dont even live in one. The cost of housing in America is so high that, to save for a future down payment, I have been making do with unconventional living arrangements at the Reason offices. This raises a critical question: why are homes so expensive?

American housing policy is caught between two conflicting goals: we want homes to be the primary vehicle for personal wealth accumulation, and we also expect housing values to keep rising sharply. At the same time, there is a desire for housing to remain affordable. Unfortunately, these aims cannot coexist. Housing operates under the basic rules of supply and demand.

In practice, the U.S. lacks a true housing policy; it has an investment policy. This goes back to the 20th century when policymakers promoted homeownership as a civic and economic ideal. During the Great Depression, the New Deal introduced federal support in the form of loans, subsidies, and tax incentives to help Americans buy homes.

Today, the tax system continues to favor homeowners. Mortgage interest on up to $750,000 of debt can be deducted from federal taxes, along with much of local property taxes. First-time homebuyer credits exist, and federal backing of 30-year mortgages lowers borrowing costs. Combined, these measures amount to roughly $150 billion per year in subsidies. Additionally, homeowners can exclude up to $250,000 ($500,000 for couples) in profit from capital gains taxes when selling their homes, a benefit unavailable to renters.

Once homeowners accumulate equity, they naturally want to protect it. New, lower-cost housing nearby can reduce the value of existing homes. Consequently, local jurisdictions across the U.S. enact policies to restrict affordable housing development through zoning rules, minimum lot sizes, height limits, historic preservation, and density restrictions. These barriers keep supply limited and prices high.

American housing policy, therefore, cannot simultaneously promote wealth building and widespread affordability. This is where Japanese practices offer a contrasting perspective.

Japan treats housing as a commodity rather than an investment. Homes physically deteriorate over time, and tax rules allow depreciation similar to business assets. Older homes lose value, reflecting their physical condition rather than speculative status. Japans zoning system is far simpler, with just 12 national categories, compared to the hundreds of local categories in U.S. cities. Developers face consistent, nationwide rules instead of navigating thousands of local regulations.

Small, efficient living spaces are common in Japan. Microapartments as small as 50 square feet can rent for around $500 per month, a scale almost unimaginable in U.S. cities like New York, where minimum apartment sizes and lot requirements limit such options. Japanese construction is less bureaucratic: meeting building codes generally ensures approval, without prolonged public hearings or last-minute historic designations that block projects.

The results are clear: Japan builds far more housing relative to population than the U.S., keeping prices lower. While a one-bedroom apartment in New York may rent for $4,000, the equivalent in Tokyo costs about $1,100. Greater supply leads to affordability without sacrificing the overall quality of housing stock.

In short, America cannot expect abundant, affordable housing while using homes as the primary vehicle for middle-class wealth. To improve housing outcomes, the U.S. could learn from Japan by treating homes more as functional assets than investment instruments, simplifying zoning, and streamlining construction regulations.

Author: Sophia Brooks