The Externality of Vacant Houses: The Case of Toshima Municipality, Tokyo, Japan

The Japanese housing market has experienced a rapid increase in the number of vacant housing units due to regulatory obstacles and a decreasing population. Abandoned vacant houses can cause negative externalities in the surrounding neighborhood, due to illegal dumping of garbage, increased risks of arson, and building collapse. Few empirical studies exist that focus on the negative externalities of vacant houses, because of data limitations. This paper investigates these negative externalities by using a complete field survey conducted in the Toshima municipality, one of 23 wards in the Tokyo prefecture. We find that a vacant (single-family) house devalues nearby rental prices by 1-2 percent, on average. Vacant houses with property defects cause greater spillover effects. Addressing dilapidated vacant housing with overgrown vegetation and combustible materials would likely produce annual tax gains greater than one million yen (approximately nine thousand U.S. dollars) per vacant housing unit. Given the substantial number of existing vacant houses, local governments should identify the types of vacant houses causing the most severe negative externalities based on empirical assessment and implement efficient countermeasures to address the issue.