The Mission of Finance in Living Style Reform

January 9, 2024
by Noriyuki Morimoto

In the economic growth of mid-20th century Japan, housing construction was an extremely important driving force. But today, a major problem is that elderly people continue to live in old houses built during that period, either as married couples or as single occupants, or that these houses have become vacant and are left to decay. In other words, the current state of housing is excessive in terms of quantity, while poor in terms of quality.

This is a consequence of industrial policies that placed a great deal of emphasis on promoting the ownership of houses that can be disposed of as durable consumer goods, rather than pursuing the comfort and convenience of living, which is the original function of housing. And it is mortgages that have financially supported home ownership.

Rationalization of the housing market is an important issue in Japan today, and a shift to housing as an asset that can be lived in into the future is required. In other words, it is necessary to improve the quality of houses through the separation of living in a house as a function and owning a house as an asset. This shift from quantity to quality, not only in housing, is a challenge for all sectors of the Japanese economy.

As a result, as homeownership becomes corporatized and industrialized as an investment management business, the need for personal mortgages will diminish and may eventually become unnecessary. Behind this is a shift in the way we live, as the demand for housing recedes and is replaced by the demand to rent and live in housing that is best suited to our life stages.

In order to push forward such living style reforms, the financial system needs to be reformed. This is because current mortgage loans are unable to accommodate the shift from houses as durable consumer goods that are eventually discarded to assets that are used over time. The loans are based on the premise that individuals buy houses, that houses eventually lose value as durable consumer goods, and that therefore only personal income is evaluated as the source of repayment.

Including supporting services such as no-collateral renovation loans and reverse mortgages, financial institutions need to drive the structural reform of the housing market by fundamentally changing the structure of home loans. In turn, structural reform of the housing market will provide new sources of revenue for financial institutions, thereby creating a virtuous cycle of improving customer convenience.

 

[Category /Deconstruction of Finance]