What is a compact city and how are they relevant to real estate investors?


One of the measures promoted by the Ministry of Land, Infrastructure, Transport and Tourism is the compact city initiative, a move that should not be overlooked by those who want to invest in real estate in Japan. In a country where the population is in decline due to the falling birthrate and ageing population, the compact city initiative is a popular measure designed to bring people back to the city centre, replacing the conventional expansive city model.

What is the compact city concept?

The concept of a compact city is to promote efficient city development from the perspective of residents and those providing public services. This means concentrating office spaces, where commercial facilities and various public services can be accessed, within a certain area. The Ministry of Land, Infrastructure, Transport and Tourism has positioned this initiative as one of its priorities.

The policy was created following the population increase caused by rapid economic growth, which sent land prices in central Tokyo skyrocketing. The population of the inner city decreased and the population of the suburbs surrounding the inner city flourished. The “doughnut phenomenon” as it became known due to the population layout of people living in a suburban ring is now considered to be an inefficient and unpleasant city setup.

This pattern was repeated throughout Japan. However, in today’s society, where the population is declining, there is a need for a compact city concept with residential and urban areas combining side by side to enable efficient and timely use of public services such as medical and welfare.

Furthermore, as Japan’s population ages, it is hoped that by living nearer to each other, community spirit will be fostered and people will help each other more in their later years.

What is the relationship between the compact city concept and real estate investment?

A solid understanding of the compact city concept will help you to seize profitable opportunities in real estate investment. The Act on Special Measures for Urban Renaissance has allowed each local government to establish its residential guidance area. This compact city plan can help investors to identify towns where population growth and development are expected in the future in the context of the ongoing nationwide population decline.

This means that investors will be able to narrow down the areas in which they expect future asset value increases. In the future, each local government will demarcate the areas that it will develop and maintain and the areas that it will not. So when making real estate investments, it is necessary to carefully observe the actions of local governments as they set out their residential guidance area.

How to pinpoint investment opportunities in the compact city concept

In areas where population growth is expected, large-scale commercial facilities will be built and public and welfare services will be enhanced. Therefore, the asset value of investment properties in these areas is likely to increase.

There is another way to profit from the asset value of investment properties. Outside of the residential guidance area, land prices are expected to decline and the value of real estate itself is also expected to decline.

View this as an opportunity to buy. If you are in an area where there is a concern of population decrease, you may be able to buy property at a low price or obtain high-yield properties by making properties purchased at low prices more attractive.


Progress in the compact city initiative is expected to bring dispersed suburban populations back to the city centre. By selecting investment properties based on the compact city planning of the local government, the possibility of investing in profitable destinations will increase. In this era of a declining birthrate, ageing population and decreasing population, compact city-based investments remain a safe choice.