Chinese Wealthy Travelers Are Flocking In, and Short-Term Rentals Are Cashing In—Despite Mounting Trouble

Soaring demand for private lodging

The private lodging industry is reaching a major turning point. The number of businesses registered with the relevant authorities at the Japan Tourism Agency has grown to approximately 57,000, and the market is now said to be worth as much as ¥800 billion. While the industry continues to grow into a major sector, repeated problems with local residents—including noise and garbage—have also become a growing concern.

In July, the Japan Tourism Agency and other authorities notified local governments that if private lodging damages the living environment of residential areas, municipalities can effectively prohibit operations in those areas through local ordinances. The government has also expressed the view that banning private lodging is appropriate when it negatively affects the local living environment.

In response, private lodging operators are growing increasingly concerned. A man who runs a private lodging business in Tokyo explains:

“Around 2017, before the Private Lodging Business Act, commonly known as the Minpaku New Law, was enacted, the private lodging industry was like a bubble, with facilities that failed to meet the required standards popping up everywhere. Although the industry temporarily declined during the COVID-19 pandemic, the number of businesses entering the private lodging market has surged over the past two or three years. Demand, particularly in central urban areas, has been skyrocketing. If we’re talking about Tokyo’s 23 wards, it would hardly be an exaggeration to say that there are private lodging facilities around almost every station.”

It is well known that the surge in demand has been driven by the increase in international visitors to Japan. Rising hotel and other accommodation prices have also likely contributed to the boom. Private lodging tends to be cheaper than hotels and inns. The man mentioned above also reveals that if you set the price 10–20 percent below nearby APA hotels, it’s easier to fill the rooms with reservations.

Differences in travel styles also appear to be contributing to the growing demand for private lodging. An American family seen dragging suitcases through Nakano Ward, an area known for having relatively few hotels, explained why they chose to stay at a private lodging facility:

“We often use private lodging when we travel overseas. It’s cheaper, and you can live as though you’re at home. If you’re staying abroad for an extended period with your family, a condominium or an entire house is more suitable than a hotel. I think quite a few foreign travelers feel the same way.”

The Shirahama area is attracting wealthy travelers

As private lodging operators sprang up amid the wave of the government’s inbound tourism policy, the Private Lodging Business Act mentioned earlier came into effect in June 2018. Since then, the market has gradually matured, but the environment surrounding private lodging operators is reportedly becoming increasingly difficult. The business operator quoted earlier continues:

“Most private lodging facilities in central urban areas are essentially subletting arrangements, where operators rent properties and then lease them out to guests. In our experience, more than 90 percent of landlords refuse to allow private lodging because of concerns about trouble with neighboring residents. Even when we finally find a landlord willing to rent to us, we’re often charged nearly twice the market rate.

There are also costs involved, such as installing security cameras. It’s certainly not an easy business where you can simply make some money on the side. Even so, it doesn’t take that long to recover the initial investment, and it’s not particularly difficult to generate around ¥1 million in annual profit. That’s why there is no shortage of operators willing to enter the market despite the time and upfront costs involved.”

So, which areas are private lodging operators currently setting their sights on?

“The Shirahama area in Wakayama Prefecture is popular. It has hot springs and the sea, and there’s something nostalgic about the place. Over the past three years or so, every person who bought a property in Shirahama from our company has been Chinese. A business model has emerged in which wealthy Chinese buyers purchase vacation homes and sublease them to operators, while Chinese tourists then use those properties as private lodging. The properties are also managed by Chinese people. This stands in stark contrast to Osaka, where many operators of special-zone private lodging facilities are struggling with falling property values now that the Expo is over.”

The increase in private lodging facilities, particularly in central urban areas, has also gone hand in hand with frequent noise complaints and garbage-related problems. The Tourism Agency’s policy shift is also said to have been prompted by the growing number of disputes between local residents and lodging users.

Going forward, it appears that how private lodging can coexist with local communities will increasingly be left to the decisions of local governments and other authorities.