The World on a Mortgage: Why Do Japanese People Take Out a Mortgage on a House They Expect to Lose Value?
A mortgage is not an investment in itself. It becomes an investment only when the market allows it. Japan demonstrates that rising property prices are not a natural law. What can we learn from a country where people take out thirty-year mortgages on houses that may lose most of their value in a few decades?
An old Japanese proverb says, "Even in hell, money talks." When I came across it, I expected to be surprised by the Japanese attitude towards money while writing an article about Japan. However, I didn't expect to encounter something that sounds almost unbelievable. Japanese people commonly take out thirty-year mortgages on houses, with no expectation that they will have a higher value in thirty years. And they easily demolish that house and build a new one on the same land. But this is not a joke; it's the reality of everyday life.
The House That Isn't Supposed to Make a Profit
For a Czech person, it's a completely absurd idea. When we acquire our own housing in the Czech Republic, we are not just buying a place to live. We are buying an idea of our future. We believe that one day we will pay off the mortgage and our apartment or house will be worth more than on the day we signed the loan agreement.
It's a bet that real estate prices will continue to rise. However, this isn't a feature of the mortgage. It's a feature of the market we grew up in.
What if we've gotten used to something that isn't a given?
When I found out that in Japan a house doesn't have to be an investment, I was completely stunned and actually scared. Suddenly I realized that maybe we don't confuse a mortgage with an investment. Maybe we've just gotten used to living in a market where a mortgage became an investment. The difference lies in what we expect from a mortgage. The difference isn't really in property prices or interest rates. The difference is in what we expect from a mortgage.
In a large part of the Japanese countryside, it is taken for granted that the land itself has value. The house on it gradually ages and often loses even its market value. For many family homes, it is expected that over the years, the building itself will have very little value. Not because it can't be lived in, but because the market perceives it completely differently than we do.
Japan is aging, and so is the housing market
Japan currently has one of the oldest populations in the world, and this is felt in the market. Approximately 29% of the population is over 65 years old. In the Czech Republic, it's about 21%. Since 2010, Japan has lost approximately five million inhabitants. To put it in perspective, that's almost half the population of the Czech Republic. The number of young people is declining, smaller towns and rural areas are losing residents, and the demand for housing is focused mainly in large cities. I can't help it, but knowing these numbers, I stopped thinking about Japan. I started thinking about Europe.
Nine Million Empty Houses
When the population decreases, the value of certain houses also decreases. Perhaps what surprised me the most was that in 2023, Japan had a record nine million empty houses. That's roughly 13.8% of the housing stock. It's a number that's almost unimaginable. The Japanese even have their own term for them "akiya". For comparison, the Czech Republic has just under eleven million inhabitants. It might seem like a huge opportunity to buy cheap housing. However, the issue is not the price. The problem is that in many places there are simply not enough people who want to live there.
And it was at that moment that I realized it. The value of a property is not determined solely by a quality building or a new roof. It is determined by the people who want to live there. If residents are leaving a place, sooner or later it will be reflected in housing prices. It's fair to add that this doesn't apply to all of Japan. Just look at Tokyo. There, land prices are still astronomical. This confirms the simple fact that the greatest value is often not created by the house itself, but by the location where it stands.
Why Japanese People Prefer to Build a New House
It's also important to realize that their perspective on housing is completely different. In the Czech Republic, we might say, "That's a beautiful First Republic villa." In Japan, many people might say, "I'd rather build a new house." This is partly because Japan experiences strong earthquakes, and after major disasters, building regulations are always tightened. Older houses can thus be considered less safe, even if they are not downright uninhabitable.
Even Mortgages Don't Work the Same
There was one more thing that surprised me about the Japanese market. In Japan, variable interest rate mortgages have long been predominant. In contrast, in the Czech Republic, we have been accustomed to fixed rates for many years. The reason is quite simple. Japan has spent decades in an environment of extremely low interest rates. When rates are almost at zero long-term, they don't pose such a significant risk.
The Japanese market shows that a mortgage doesn't have to be automatically associated with the expectation that the house itself will be significantly more expensive in thirty years. It is primarily a way to finance one's own housing. In the Czech Republic, we have become accustomed in recent years to building wealth as we repay a mortgage, but that's not a characteristic of the mortgage itself. It's a characteristic of the market.
What to Take Away from Japan?
When we talk about mortgages today, we usually discuss interest rates, the length of the fixed period, or the monthly payment amount. But maybe there's an even more important question.
Not whether the bank will lend to us, but whether what we're borrowing for now will have the expected value in thirty years.
Japan reminded me that real estate price growth is not a natural law. It depends on the economy, demographics, supply and demand. And most importantly, on how many people want to live in a given place. Because a mortgage in itself is not an investment. It becomes an investment because of the market. And sometimes it changes before we're willing to admit it.
So, would you take out a thirty-year mortgage today on a house that you know will have a lower value in thirty years than it does today?
Sources: original text, commentary, Housing Japan, Statistics Bureau of Japan 2023/2025, Nippon, The Guardian, ČSÚ
