Shrinking metropolitan area: Costly homeownership and slow spatial shrinkage

Abstract: http://journals.sagepub.com/doi/full/10.1177/0042098017743709#abstract

Although most of the metropolitan areas in the world are currently growing, some developed areas may face a metropolitan-level population decline in the near future, because urbanization leads to a low fertility rate. Indeed, the Tokyo metropolitan area has recently been shrinking in the sense that the population in the peripheral municipalities has started to decline, which suggests that residential districts maintain a demand only for some decades after their development. Since houses are durable, the homeowners of used properties are now competing to attract a smaller number of new residents. Consequently, abandoned properties are now increasing in number in the suburbs (Figure 1).

Figure 1: An abandoned house in a suburban residential district of the Tokyo metropolitan area. Source: taken by the first author in 2013

Our paper investigates the impact of the metropolitan-level population decline – when existing homeowners compete to attract a small number of new residents – on homeownership and land use. We introduce the population shrinking process into the land use model in a monocentric city structure. The supply cost of existing rentable houses now determines the rent curve within the city: owners at the periphery are indifferent between “disposing of the property right now” and “keeping the property for some rental income.”

Our theoretical model describes these phenomena. First, if abandoning the housing property right is costly, the value of owning used houses becomes negative in the periphery. In the Japanese context, ownership abandonment entails giving up the whole inheritance (i.e. including other financial assets). Otherwise, homeowners are forced to bear burdens reluctantly in terms of management and property taxes forever, even if they do not live in or rent out the property. Thus, selling used houses is impossible in the periphery, while leasing is possible. Houses are no longer durable goods that yield positive value.

Second, a time gap emerges between the population decrease and the shrinkage of the city’s spatial boundary. Specifically in Japan, ‘long-life-quality houses’ (i) yield higher utility levels for longer periods than conventional ones and (ii) require a relatively high initial investment but are now given a subsidy (i.e. a preferential tax system). When the demand declines in the periphery, only long-life-quality houses still attract new residents. A less densely inhabited urban form such as this may raise the cost of providing public services, such as the water supply and road maintenance, which need infrastructure including water pipes and road networks regardless of the population density. Social welfare may decrease in the shrining metropolitan area, because the government has to maintain the slowly shrinking, less densely inhabited urban area.

Policy implications are as follows. First, if abandoning the housing property right is costly, leasing is the only way to utilize the increasing number of vacant properties in the periphery. However, if governments can present a positive scenario, for example, of converting vacant properties to agricultural land, the remaining property value may become positive, and thus, transactions of used houses are accelerated. Second, it may be desirable for policymakers to restrict the spatial area where the subsidy for long-life-quality houses is available. Since houses are durable, it is important to guide the expanding cities so that their shrinking processes become efficient.

In the near future, the shrinkage of the metropolitan area is likely to become a phenomenon that affects other cities and countries. We therefore argue that further regional studies and analytical frameworks are urgently needed on this topic.

Read the paper on Urban Studies - Online First here.