Market Focus : Builders See No Ceiling on Exporting to Japan : It’s the most lucrative housing market in the world, with 1.6 million starts a year.
It’s advertised as the “Three-Floor Dream,” and Sumitomo Ringyo Co.’s latest model home is unquestionably a fantasy compared to the cramped abodes the Japanese normally endure. Encompassing 1,700 square feet, the house boasts four bedrooms, 2 1/2 bathrooms, two dining rooms and balcony space galore.
But to foreign home-builders visiting here recently, it was the price tag that seemed make-believe: $900,000--and that’s not including the land.
“I could put that up for $80,000, and that’s an absolute fact,” gasped Irish home builder Gerard McCaughey, his jaw literally dropping.
Southern California beachfront builders would charge about $170,000, added McCaughey, who lived and worked there as marketing director for Ireland’s largest builder, Century Homes. Mark Hutchinson, a lumber supplier from Idaho, reckoned $170,000 would buy both the home and the land in Boise.
“You hear these kinds of stories and you see dollar signs,” McCaughey said.
That’s precisely the point, in the eyes of the Japanese government. Last year, the coalition government of then-Prime Minister Morihiro Hosokawa announced a national target to cut Japanese home prices--now among the most expensive in the world--by one-third by the year 2000. Scrambling for ways to meet that goal, both government officials and private firms have launched campaigns to increase housing imports.
Not only would better housing at lower prices fill the single greatest demand of Japanese consumers. It would also help shave the politically nettlesome trade imbalance between the United States and Japan, pointed out Shusaku Hirano, who is leading the campaign for the Japan External Trade Organization.
“One imported housing kit costs $70,000 to $80,000. That’s two or three times the cost of an automobile, so it’s worth it for us to tackle,” Hirano said.
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JETRO sponsored the recent visit of 60 builders, suppliers and trade promotion officials from 20 nations to study Japan’s housing market. The organization has also erected four foreign model homes in Yokohama, a port city 30 minutes by train from Tokyo, and formed an Import Housing Promotion Council along with other industry and government officials. In addition, the Export-Import Bank is providing low-cost loans to Japanese importers of foreign homes and building materials.
For foreign builders, the payoffs are potentially huge. Japan is the most lucrative housing market in the world, with more housing starts per year--1.6 million--than the United States despite a population half the size. The market is growing by more than 8% a year, Hirano said.
And Japanese consumers have the money to take on mortgages.
“The most economically promising market in the world, bar none, for Western homes is Japan,” said Don O. Carlson, editor and publisher of the Automated Builder, a building trades publication based in Carpinteria. “Mexico needs 6 million homes and the Soviet Union in excess of 12 million. But the question is, can they pay for them?”
Yet the average home here is twice as expensive as one in the United States, and the gap widens further when land is included. The cost of building materials is boosted by an unwieldy distribution system padded with layers of brokers, complicated regulations and detailed inspection systems.
Every single imported faucet, for instance, must be individually examined and approved by a committee of government and industry officials, said H. Kohda, director of Sumitomo Fudosan Home Co.
In addition, high labor costs and construction techniques that Japanese builders themselves admit are relatively inefficient also boost the price. Japanese construction workers are paid about $220 a day, regardless of output or skill level. In the United States, pay scales are differentiated by skill, and payment by piecework--$100 per door, for instance--is common.
And because all U.S. housing is built with lumber based on a 2-by-4 standard, American homes use an average of 28 types of lumber. Traditional Japanese homes, in contrast, use 150 different types of lumber, much of it requiring complicated cutwork.
As a result, erecting homes takes twice as long in Japan. Training framers takes two years in the United States, compared to 10 years or longer in Japan, Hirano said.
The market opportunities may sound too good to be true, and some of them are. For instance, even if U.S. housing kits are cheaper, they still have to be put together here. That means the price advantage is all but eaten up by Japan’s higher costs for labor, transportation and other services. The final selling price of imported homes is only about 7% lower than that of Japanese homes.
Another formidable barrier is the refusal of the Japan Housing Loan Corp. to extend low-cost financing to imported homes.
Still, builders here see plenty of ways to make a yen on the import boom. In contrast to U.S. cars, which are still plagued with poor reputations, the American home is idealized as bright, spacious and enviably well built. Japanese homes tend to have lower ceilings, smaller rooms and an average life span of just 20 years--reasons why a French trade minister once derided them as “rabbit hutches,” in a slur that stung the national consciousness.
“An American house is a dream to many Japanese,” said Sumitomo’s Kohda. The firm, whose Laguna Hills-based subsidiary has built 1,400 homes in Southern California since 1972, is sponsoring an “American Fair” to publicize its own drive to import housing kits and parts.
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Sumitomo, fiercely competing with other Japanese builders in the race to cut housing costs, plans to increase imports of kitchen cabinets, flooring, accessories, lumber and other building materials to 50% of total procurement in the next few years.
The firm is also planning to boost its imports of housing packages. By keeping the proportion of Japanese parts to 60%, it will make the homes eligible for low-cost government financing, Kohda said. And Sumitomo still expects to shave its home prices by one-third.
It won’t be easy to buck the convoluted distribution system that, despite its inefficiencies, keeps scores of people employed. After the firm launched its “American Fair” this month, it was deluged with visits from local suppliers who feared getting bypassed if Sumitomo begins importing directly from abroad.
But, amid cutthroat competition, Kohda says Sumitomo has no other choice but to eventually eliminate most middlemen.
“They wanted to know what our intentions were, what role they could play in our new strategy. They were filled with anxiety,” Kohda said. “I told them, ‘We have to survive.’ ”
Raymond Hege is also confident about Japan’s market prospects. Sensing the housing boom when he visited Kyoto last year, the architect plunged ahead and started an export firm in April. The Los Angeles-based firm, Transpacific Housing Systems, exports housing, construction materials and such services as interior design and project management.
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A longtime student of Japan, Hege has been careful to prepare his materials in both English and Japanese, take the time to find suitable Japanese partners and offer products customized for the Japanese consumer.
His homes, for instance, offer such standard Japanese features as an entryway where people can take their shoes off, rooms with bamboo “tatami” mats and bathrooms that separate the toilet from the bath.
The homes still cost significantly more than those Hege builds in the United States: A home that goes for $110,000 in Big Bear cost $285,000 to put up in the Mount Fuji resort area of Hakone, for instance. But Hege hopes eventually to bring the costs down as he trains Japanese builders in the more efficient system of U.S. construction management.
“It’s a good market for the right person,” Hege said. “But you have to be committed, and you have to be willing to do things in a Japanese way.”
HOUSE FACTS
In Japan: 1,700 sq. ft. “Three-Floor Dream” with four bedrooms, two baths, two dining rooms and a balcony costs $900,000
In Southern California: Same home, minus land, costs $170,000
In Boise, Idaho: Same home with land costs 170,000
In Japan: Imported house kit--$70,000 to $80,000 (two or three times the cost of an automobile)
In United States: Typical house uses 28 types of lumber
In Japan: Typical house uses 150 types of lumber
