Last week the Japan Housing Finance Agency announced a new scheme whose ostensible purpose is to support couples who have children or plan to have children. The scheme targets couples looking to buy homes by offering to reduce the interest rate on mortgages approved under the agency’s Flat 35 plan, which offers full-term fixed-rate loans with no guarantee fees or extra charges for prepayment. 

In a series of articles, the Asahi Shimbun implied it is yet another government scheme to raise Japan’s sagging birth rate, though a closer look at the particulars would seem to suggest that it’s yet another government scheme to boost the residential real estate market. In a nutshell, the plan, which goes into effect next spring, is to knock 0.25 percentage points off the Flat 35 interest rate approved by financial institutions for every child a couple has at the time they apply. At present, the interest rate for Flat 35 loans ranges from 1.96 percent to 3.53 percent for mortgages that last between 21 and 35 years. So if a couple has two children, they can reduce their interest rate by 0.5 percentage points. If they have three children, it’s 0.75 percentage points. The maximum reduction under the scheme is 1.0 percentage points, but if the couple applying for the loan is already receiving other reductions offered by either the central government or their local government, including interest reductions for a new house with approved energy saving functions, then those reductions are included in the final calculation by the lender.

Some local governments already offer interest-reduction plans to couples with children, and those reductions would also be counted toward the 1.0 percentage point maximum allowed under the new plan. However, if the total reductions add up to more than 1.0 percentage points, the excess can be carried over to a later year. The new scheme sets the interest reduction to be in effect for up to ten years, but if there is an excess of reduction points those points can be knocked off the mortgage interest for five years following the expiration of the initial reduction period. As it stands, the central government, through the Ministry of Land, Infrastructure, Transport and Tourism, has already budgeted ¥210 billion in various schemes to help people with children buy homes—for instance, couples with children under 18 who buy a new house that qualifies as a Zero Energy Home can receive ¥1 million in cash—and the budget for this new scheme is only ¥1.5 billion. 

And there are more asterisks. The couple applying for the Flat 35 loan can only count existing children toward the reduction. Any children born after the loan is approved do not count. However, if a couple applying for the loan does not have any children, but at least one spouse is under the age of 40, they are also eligible for a 0.25 percent reduction, presumably due to the notion that they could potentially have a child in the future. Even more interesting is the fine print that says same sex couples are eligible for the reduction. Since same sex marriages are not legally recognized by the central government, that would seem to mean that civil partnerships qualify for the new scheme, which could open up a whole can of worms for the lending institutions that approve the Flat 35 loans. Do common law marriages qualify? And since same sex partners in Japan cannot have children through IV and other medically induced conception procedures, does that mean adopted children qualify? How about divorced or otherwise single parents?

Obviously, the real purpose of the new interest reduction scheme is not to boost the birth rate. After all, it originated with the land ministry, the government organ in charge of real estate and housing, and not the new family agency or welfare ministry, which are supposed to be handling the birth rate issue. And while the housing market is doing pretty well at the moment, it’s mainly because interest rates are so low. There is a fear that they will go up soon, at which point the housing market, in particular new home construction, would stall, thus throwing the economy for a loop, since so much in Japan depends on the construction industry. So while it might seem that the new scheme takes advantage of the housing market to help the birth rate, it’s probably the other way around.