Our Firm
Resi Wrap - Ship of Theseus
May 2021

Friends of ResiShares -

Japan is a little bit different. An old colleague once remarked, upon returning from a vacation to Japan, that it was worth visiting because “it had the most unique culture of any developed country he had ever visited.”

Japan’s wealthy but shrinking population can lead to economic outcomes that the human mind struggles to comprehend. It’s important for us to do so, because in many ways, Japan’s demographics represent the future for the rest of the rapidly urbanizing world. Watching their experience with sustained negative interest rates may have been worthwhile for European investors, for instance.

This story about the planned obsolescence of Japanese home architecture just about blew my mind on an initial reading. Apparently in Japan, homes are routinely torn down after their 22 year “useful life” (depreciation to zero from an accounting perspective), and rebuilt from the ground up for the next home buyer. Banks won’t lend against homes above depreciated book value, locking this cycle into the country’s financial system.

The article traces this behavior to a history of living on the earthquake-prone “Ring of Fire”, as well as a cultural link to Shinto concepts of transience. Still, the economic implications of this practice are insane under the prior assumptions of an American homebuyer.

We think of our houses as a 401k in which we can sleep. We watch shows on HGTV called “Flip that House” and “Fund that Flip” (I’m waiting for “Flip that Fund” when ResiShares goes public). We buy the biggest, most expensive home we can afford and upgrade it over time, allowing us the maximum possible leverage to rising land values. Homes in the US are the proverbial Ship of Theseus, growing and upgrading with each turnover, holiday bonus, or style change from Joanna Gaines or the Property Brothers.

So is it that Japanese home buyers can engage in their architectural whimsy because their declining demographics free them from the hope of appreciation? The article above suggests that this is not the whole story. This architectural phenomenon is not new, and Japan’s population and land values have not always been in decline.

We wrote a few months ago that an attached home as an investment is comprised of the improvements - a depreciating asset that generates income, hopefully above depreciation, and a plot of land - a hopefully appreciating asset of limited utility/income by itself.

Maybe the Japanese have simply taken that separation of land and improvement value, investment and consumption, to its furthest possible conclusion.

But how would appraisals work in Japan? How does the government measure housing cost inflation (probably better than ours does)?

The Rest of Resi

  • Airbnb long form puff piece - This is a good read as a microcosm of the Covid-induced whiplash the real estate market as a whole experienced. Also, their future growth vision is the “Redistribution of Travel,” in which people live peripatetic lives as they seamlessly blend work and travel while living their best life. It sounds like it might work…for the top 5% of income earners with no school-aged children.

  • iBuyers are working out the kinks in transaction management, while traditional agents adapt to the brave new world (paywall).

  • Huge gains in the cheapest neighborhoods spur flipping activity. While this late-cycle behavior typically presages financial tightening that disproportionately slams these very assets, you could have said the same thing about equity and high yield markets in 2015.

  • Quantifying the effects of locked-in homeowners, immobilized by their low mortgage rates, low property tax rates, and now pandemics.

  • Talk about an underwater investment! <I’ll see myself out>

Have a great weekend,

Michael Greene

Co-Founder and CEO

ResiShares |