Wait, Tokyo?! The City Quietly Matching Sydney’s Home Price Explosion

What happens when the housing data doesn't fit the narrative?

An unfortunate reality is that any conversation about housing economics in 2025 quickly descends into a game of identifying whether a person is a supply skeptic or believes in supply and demand.

This game is silly.

I wrote a three-part series here at FET on how supply and demand MUST apply to housing, and how most attempts at applying this economic model get it wrong.

Supply and Demand: They MUST apply to housing (Part I)

Rather than play the game of who believes, let’s identify patterns in the data that we need to explain with our economic science.

The main question today is whether there is a pattern in the data on the price of homes in Tokyo that needs an explanation, and whether the popular story of Tokyo being an example of YIMBY success fits as an explanation.

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What’s the TRUE price of housing assets?

Comparing asset prices and their trends between countries and asset classes is quite tricky. We shouldn’t pretend it is straightforward.

For example, looking at nominal asset prices converted by exchange rates, or even nominal price changes, can tell a story about inflation, interest rates, and economic conditions as much as it can tell a story about the asset market in question.

This is especially the case with housing, and especially when comparing countries with vastly different macroeconomic conditions.

So before we get to the price charts, let’s dig into why cross-country comparisons of property asset values are so difficult.

Asset trades occur between buyers and sellers who are informed of the important features of the asset—what income it generates, what taxes or other ongoing costs the asset owner will pay, and expectations of income or price growth. Trades occur because of different expectations and alternatives available to buyers and sellers (if buyers and sellers both had all the same expectations and alternatives, they would not trade with each other).

For housing assets, incomes come from rents, which depend heavily on local incomes. Taxes paid by housing owners vary greatly, and asset prices adjust to reflect those future tax liabilities (higher taxes on assets mean lower asset prices, and vice versa). High-income locations with low property taxes must have high housing asset prices, ceteris paribus.

Prevailing interest rates matter, as these influence the return to alternative uses of money and the cashflow effects of leverage.

And expectations of future rental growth also matter.

Future rental growth creates a return to current buyers in the form of both higher future incomes and higher future prices. For example, in a deflationary environment with widespread market expectations of declining rents and prices, housing asset prices will be depressed relative to what would be expected by prevailing income, taxes, and interest rates in an inflationary environment.

All of these factors combine to make comparing international asset prices so tricky.

Housing asset prices in cities abroad might appear low or high from the perspective of one country when we simply convert the asset price by the currency exchange rate. But this won’t tell us if the asset price is somehow out of whack with local asset pricing conditions unless we know the various other factors at play. Similarly, speculative property cycles happen in different places at different times, adding to the complexity.

We will return to these factors again after some charts. You can also read more in The Great Housing Hijack.

What about those housing asset prices

Housing prices are constantly adjusting to new economic and financial conditions, whether that involves incomes, inflation, growth rates, taxes or plain old expectations.

And yet the stories we often hear about the main drivers of housing and the potential for policy change revolve around physical factors—tight geography, regulations on density, or building standards.