Asian property markets’ supply constraints are a double-edged sword

Japanese Prime Minister Sanae Takaichi has her work cut out for her. Among the daunting challenges confronting her after winning a resounding victory in a parliamentary election on February 8, tackling the rising cost of living is at the top of her political to-do list.Mounting concerns about the dramatic rise in property prices in Tokyo and other large cities have proved fertile ground for scapegoating, with immigration figuring prominently in election campaigns.Last year, the average price of a new flat in the Tokyo metropolitan area rose 17 per cent to a record high, prolonging a period of almost uninterrupted growth since 2019. Pointing the finger at opportunistic foreign investors exploiting the weak yen to buy properties on the cheap makes for good politics, but overseas buyers are not the main culprit.The steep increase in construction costs, which stems partly from severe labour shortages, is far more consequential. The plunge in the yen drove up import prices sharply, turning Japan’s construction market into one of the most expensive globally. This has caused the supply of new flats in Tokyo to fall to its lowest level in more than 50 years, contributing to the surge in prices.Undersupply is also a key factor driving other buoyant housing markets in the Asia-Pacific. In Australia, where home values have risen 46 per cent in the past five years, advertised stock last month was 25 per cent below the five-year average for the first month of the year, while new completions are expected to remain significantly below historical levels, according to Cotality.In South Korea, successive governments’ attempts to take the heat out of the residential market in Seoul – where flat prices have risen for 53 straight weeks – have failed because of an overemphasis on demand-side measures, especially tighter curbs on mortgage lending.