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Home sharing can boost more than tourism in Japan

Legalization could bring life to vacant homes and lift construction sector

| Japan
A house in Tokyo's Ota Ward, which has begun experimenting with home-sharing.

Home-sharing services such as Airbnb are illegal in Japan, except in Osaka and Ota Ward of Tokyo. A move is now afoot to change the law and advocates should persevere as such services could provide a needed support to the country's growing tourism sector ahead of the 2020 Tokyo Olympics.

The Japanese cabinet endorsed a proposed bill to legalize home sharing on March 10, but the outlook for parliamentary approval is not yet clear. As drafted, the bill would allow residential rentals nationally for up to 180 days per year.

The doubling of annual inbound tourist flows to 24 million since 2013 has already led to a shortage of hotel beds. Yet the country aims to attract 40 million visitors annually by 2020.

Japan has 846,300 hotel rooms, but their distribution doesn't necessarily fit current needs. Tokyo, Osaka and Kyoto together account for just 21% of the total room inventory. The next-largest concentrations are in Nagano, Hokkaido, Shizuoka and Okinawa with a combined 18% of rooms.

Hotel occupancy reached 82% in Tokyo and Osaka last year. Operating largely under official radar, U.S.-based Airbnb offers bookings at around 48,000 homes in Japan. Occupancy rates for these are among the company's highest globally, at around 70%. Airbnb hosted some 3.7 million visitors in Japan, nearly tripled the volume for 2015.

Casino gambling

Hoteliers in Tokyo and Osaka are each expanding room inventories by at least 20% over the next three years. The recent approval of casino gambling in Japan will also likely boost room supply, but the new integrated resorts are not expected to open until at least 2022.

Giving Airbnb and similar services a firm legal footing could help ease the squeeze and boost the economy. Tourism and travel accounted for 2.6% of Japan's gross domestic product in 2015 according to the World Tourism Council. If Japan can achieve its 2020 tourist target, the sector's GDP share may double to 5%, which would top the 4% average for countries in the Organization for Economic Cooperation and Development.

Apart from tourism, deregulation could also be a boon for the construction industry and other services if some of the 8 million vacant homes in Japan are renovated and turned into rentals. Tujia, a Chinese home-sharing service, has announced plans to recruit owners of vacant Japanese properties to convert them to rental homes if the proposed bill passes parliament. Airbnb itself could probably triple its Japanese inventory to 160,000 rooms if legalization is free of too many restrictions.

The government should change tax laws which now give owners an incentive to keep homes empty. An empty house has a 60% lower tax bill than idle land according to Will Montgomery, a property analyst at Macquarie. "These laws keep old properties from being torn down," he said.

Beyond rooms

Critics may argue that the Japanese are too insular and would not able to deal with 20 million tourists a year, especially if a lot more of them are staying in private accommodations. For instance, foreigners have trouble following Japan's strict written rules regarding garbage collection and its unwritten rules regarding acceptable levels of noise.

However, Secom and Alsok, the country's largest providers of home security, might be able to help solve problems facing home-sharing tourists. They already provide 24-hour surveillance at many homes and together have 3,600 branches nationwide with staff who could visit homes at any time of day or night. It seems logical that garbage, security and translation services could be added to work on Airbnb's platform.

Ride sharing services like Uber have also been getting attention from officials lately. The Diet is expected to discuss ride sharing after the Regulatory Reform Promotion Council, an advisory body to the prime minister, submits its findings on the issue.

Ride sharing, however, faces a tougher path to legalization in Japan than Airbnb. The taxi lobby, with 193,000 drivers, is strong and very opposed to legalization, like its counterparts elsewhere. In an effort to forestall it, taxi companies recently cut starting fares in Tokyo and two suburbs from 730 yen ($6.57) to 410 yen. Compared to the U.S., where taxis and trains are typically dirty and unreliable, taxis are normally clean and trustworthy in Japan, though high fares and language barriers can put off some visitors.

All in all, a greater choice of accommodation would be of more benefit to Japan's tourism sector and economy than the convenience of Uber. Legalized home sharing could help address both the shortfall in hotel rooms and the surplus of vacant homes.

Eric Ritter is a consultant to MRO Training Solutions in Tokyo and was previously a senior analyst with Nezu Asia Capital Management.

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