Economics of Urban Recentralization

* This publication is in Japanese. An English translation is not available.

In Japan, since the postwar high-growth period, almost all cities with populations above 500,000 have grown by absorbing people from smaller cities. Population growth in major cities accelerated particularly during periods of economic expansion.

The present recovery of the Japanese economy has brought with it a construction boom in major cities, with office buildings and condominiums planned and completed one after another. This ongoing phenomenon is perceived to essentially be following this tendency of major city population increase in line with economic expansion.

However, the latest construction boom also shows some distinctive differences from booms witnessed in previous economic expansion periods. First, clear signs for urban recentralization can be observed. That is, population increase is occurring not in the form of suburbanization but by way of construction of office buildings and condominiums in city cores. Both in Tokyo and Osaka, inner-city populations have been growing at a greater pace than suburban ones.

A major factor behind this new development is a series of statutory changes implemented in the early 2000s to promote urban rejuvenation. Other important factors include the government's abandonment of the idea of "balanced development of national land," a long-held philosophy that served as the backbone for various policies, and the abolishment of the Manufacturing Industry (Factory) Restriction Law.

In the past economic boom periods, a shortage of floor space occurred in urban centers due to the presence of various regulatory restrictions. In contrast, the ongoing economic recovery is taking place amid the rejuvenation of metropolitan inner-city areas as well as the concurrent regulatory changes to remove obstacles that have been hampering the development of Tokyo and Osaka. This resulted in an environment unique from those in past recovery periods.

The purpose of this book is to provide academic backing for such policy change to promote urban recentralization. Specifically, we seek to achieve four objectives.

First, we attempt to demonstrate that major factors contributing to the high productivity of major cities are attributable to the high density of the cities' working populations.

Second, we illustrate how the government's restrictive policies toward the development of inner-city and metropolitan areas have in the past impeded agglomeration in major cities as well as how the subsequent policy change is helping the ongoing urban recentralization. Furthermore, we seek to explore other factors contributing to the recentralization. As a substitute for the floor-area-ratio control, which has played a leading role in restricting concentration in major cities, we propose alternative, effective measures to relieve urban congestion.

Third, we analyze the past and future of Tokyo and Osaka. We first clarify what factors have contributed to Tokyo's growth. Then, we identify reasons behind the stagnation of Osaka - about the only major city that remained stagnant in Japan - thereby proposing measures for its revitalization. One of the biggest factors constraining the growth of Osaka, as well as that of Tokyo, is airport problems. Thus, we put forward a set of concrete proposals as to how the government's airport policies should be changed, including ideal ways to manage and operate ports.

Fourth, we analyze the cost and benefit of recentralization, comparing the benefit derived in the form of improved productivity resulting from urban agglomeration and the social cost incurred by increased congestion.

Our conclusions are as follows.

First, a shift from the conventional policy of inhibiting the growth of major cities to one that enables urban recentralization, which includes the easing of floor-area-ratio control, would generate benefits that substantially exceed the cost of increased commuter congestion resulting from recentralization. In addition, considering the relative decrease of working-age population in the suburban areas, the likelihood of the occurrence of greater congestion would be further diminished. Therefore, a shift to a pro-recentralization policy is justifiable.

Next, the problem of congestion resulting from urban agglomeration should be dealt with by peak load pricing, a measure that works directly on the problem, rather than by floor-space-control that inhibits the benefits of agglomeration.

Regarding airport problems as a factor constraining the growth of cities, the situation in the greater Tokyo metropolitan area can be substantially improved by reallocating routes between Narita International Airport and Haneda Airport based on operating efficiency and regardless of past practice or precedent. Social benefits derived from such reallocation would be far greater than the cost involved. The same can be achieved in the Kansai region by constructing a new airport and closing the existing ones.

Meanwhile, our analysis of the contributing factors of Osaka's decline revealed the following. First, the abolishment of the Manufacturing Industry (Factory) Restriction Law may become a turning point leading to the economic reconstruction of the Osaka region. To accelerate this move, it is necessary to further promote urban agglomeration, rethink and overhaul airport locations, and realign the government structure for urban development.

In writing this book, we have received a great deal of encouragement and proposals from the standing members of the Gendai Keizai Kenkyu Group. In particular, it is based on their suggestions that we have discussed the reconstruction of Osaka from a broad perspective.

This book brings together findings primarily from a RIETI research project, "East Asian Economic Integration and Urban Agglomeration in Japan," undertaken from fiscal 2004-2005. We have received many valuable comments and suggestions from RIETI members, particularly Dr. Masato Hisatake.

Finally, we would like to express our utmost gratitude to Mr. Osamu Masuyama, Mr. Yusuke Horiguchi and Mr. Shuichi Hirai of the Publications Bureau, Nihon Keizai Shimbun Inc. for giving us precious guidance at every stage.

HATTA Tatsuo