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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.


YOKOHAMA, Japan — 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.


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.

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