Japan high construction costs put existing homes further in focus

High construction costs are strengthening the case for Japan to make better use of its existing homes.

Industry groups are pushing for more support for renovation, energy-efficiency upgrades and a stronger resale market that could help sound older properties remain useful for longer.

The argument is gaining weight even as shortages of construction materials and labor remain relatively contained.

Japan’s construction costs are still elevated. MLIT’s construction cost deflator, which tracks changes in building costs over time, showed the building index at 135.0 in March 2026, 6.4 points higher than a year earlier.

More recent surveys suggest that this pressure is not being driven by a new supply shock.

In July, the nationwide labor shortage rate across eight construction trades was 1.2%, up from 1.0% in June but below 1.6% a year earlier. MLIT described the outlook for securing workers in September and October as “normal.”

The figures do not point to a rapidly worsening labor shortage. But neither do they suggest a large surplus of construction workers.

Materials tell a similar story.

In August, MLIT found supply and demand balanced across all 13 product categories covered by its survey, with inventories classified as normal. H-beam prices were assessed as slightly rising, while prices for the other surveyed materials were unchanged from the previous month.

These surveys do not show that overall construction costs rose in July or August. They do show that more normal supply conditions have not translated into a return to substantially lower building costs.

That makes the economics of Japan’s existing housing stock more important.

Why existing homes matter more

Japan has historically relied much more heavily on new housing than major Western markets.

An MLIT comparison based on 2018 data put existing homes at about 14.5% of total housing transactions, only around one-fifth to one-sixth of the level seen in major Western markets.

The treatment of older detached homes has also been unusual.

MLIT has previously identified a market convention under which wooden detached houses could be valued at close to zero after roughly 20 to 25 years, regardless of their actual condition. The government has sought to improve valuation methods so that maintenance, renovation and building performance are better reflected in prices.

When replacement is expensive, that distinction matters more.

Renovating a structurally sound existing home can offer an alternative to demolition and rebuilding, particularly in locations where the land and surrounding infrastructure already have value.

For buyers, a renovated existing property can provide another route into areas where newly built housing has become expensive. For owners, improvements can extend a home’s useful life without requiring complete replacement.

That does not mean every older home should be preserved.

Some properties may be too inefficient, structurally unsuitable or poorly located to justify substantial investment. The more important question is whether homes that remain viable can be identified, upgraded and traded more effectively.

Industry pushes for better housing stock

That direction is increasingly visible in housing-industry policy proposals.

The Prefab Building Association submitted its FY2027 housing-related budget and tax requests to MLIT in July. Its proposals call for support to form and circulate high-quality housing stock that can be used across generations.

The association specifically requested higher subsidy limits in response to rising prices and construction-material costs, along with continued support for programs covering energy-efficient housing, renovation and housing-stock circulation. It also called for faster adoption of higher environmental-performance standards, including ZEH and GX-related housing.

These are industry requests, not government policy.

But the direction is broader than one association. The Housing Production Organizations Federation has also highlighted existing-home circulation, improvement of housing-stock quality and preservation of housing value in its policy work, while its housing-stock committee has been developing proposals for FY2027.

For that shift to work, buyers need greater confidence in what they are purchasing.

In practice, that means making building condition, maintenance history and renovation work easier to understand and reflect in pricing. Energy-efficiency improvements and more credible valuation of building quality could also help reduce the information gap between new and existing housing.

For developers and other market participants, a stronger resale market could create more room for acquisition, renovation and resale strategies. But the economics will vary sharply depending on location, building condition and the cost of upgrading each property.

Japan’s latest construction data do not show a fresh cost shock.

What they show is that building costs can remain elevated even when material supply is balanced and labor shortages are relatively manageable.

That strengthens the case for treating higher-quality existing homes not simply as aging buildings, but as housing stock that can be maintained, improved, valued and circulated more effectively.

Further Reading:

MLIT: Construction Labor Supply and Demand Survey, July 2026 (Japanese only)

MLIT: Major Construction Materials Supply, Demand and Price Survey, August 2026 (Japanese only)

MLIT: Construction Cost Deflator (Japanese only)

Prefab Building Association: FY2027 Housing Tax, Budget and Policy Requests (Japanese only)

Housing Production Organizations Federation: Housing Stock Committee (Japanese only)

Housing Industry Newspaper: August 25, 2026 issue overview (Japanese only)