If you didn’t know any better, you’d probably think Japan builds far fewer houses than America, if for no other reason than the fact that Japan’s population is less than 40 per cent the size of America’s. You would, however, be wrong:
Since 1992, America has built just 14 per cent more homes than Japan, despite the huge difference in population and the dramatic ageing of Japanese society. The chart below shows the ratio of the number of housing starts relative to the number of people in the prime home-buying age cohort of 25-54 in both countries:
With the brief exception of America’s housing bubble, Japan has consistently built more than twice as many houses per potential homebuyer as the US.
My colleague Robin Harding has elegantly explained that much of the robust demand for new housing can be attributed to the Japanese preference for tearing down and replacing old homes, with the expectation those too will be replaced in short order. He also noted that liberal land regulations have meant that the influx of younger people from the countryside to the big cities was easily accommodated with additional housing supply, unlike much of the Anglosphere.
Those who believe that demographics create binding constraints on economic activity are probably confused by this narrative. Just how did Japan manage to find enough construction workers to actually build all those new homes?
Being outside and lifting heavy objects is hard and generally not that remunerative. Surely an aging society without a reservoir of cheap (and often illegal) immigrant labour would have fewer builders as a share of the labour force than a relatively youthful and foreigner-friendly country such as the US. Unsurprisingly, there has been a glut of articles over the past few years warning of “labour shortages” due to the combination of aging and falling immigration rates, with the implication that this has been restraining construction and inflating house prices.
Reality is the other way around. Despite radically different demographics and essentially no immigration, Japan has consistently employed a much larger share of its workers in the construction industry than the US, although the share has dropped over time. Even at the peak of America’s housing bubble, only about 5.5 per cent of workers were employed in construction. In Japan last year, more than 7 per cent of employees worked in construction — and that’s a lot lower than in the early 2000s:
But this is only part of the story. Japan’s workforce is much smaller than America’s, so the higher share of people working in construction isn’t enough to explain Japan’s ability to build so many homes. The rest of the difference comes from the higher number of housing starts per construction worker in Japan, especially since 2006:
This isn’t a perfect comparison, since construction workers in both countries include people who aren’t involved in residential building. People who put up office towers or pave roads are also counted. (Tellingly, the only time Japanese builders appeared to be less efficient was when the government engaged in a massive infrastructure programme to offset private deleveraging.) Even with that caveat, it’s worth noting the average Japanese construction worker currently produces about 37 per cent more new housing than the average American construction worker.
Another way of putting all of this is that America built about the same number of housing units in 2016 as in 1992, but somehow required about 46 per cent more people to do it. Japan built 31 per cent fewer houses in 2016 than in 1992, but its construction workforce had fallen by 19 per cent. Productivity deteriorated in both countries, but productivity fell much further in America than in Japan.
The data imply there is a glut of American construction labour, not a shortage. There are plenty of people, but they’re too inefficient.
Related links:
There’s No Such Thing as a Job Americans Won’t Do — Daniel Gross
The remarkable productivity stagnation of the US construction sector — FT Alphaville