What is Gentrification? The Dark Side of Rights Conversion and Landowner Risks in Japan

Urban redevelopment is often described as a project that "evolves" a city. Towers rise, commercial facilities flourish, and land prices increase—this narrative certainly captures one side of reality. But where light shines brightest, shadows fall deepest. Behind the "light" of redevelopment, residents who have lived on that land for generations are quietly displaced, and vulnerable landowners suffer disadvantages through complex rights conversion procedures. This problem is called "gentrification." For ultra-high-net-worth investors approaching redevelopment areas, whether you become a beneficiary or a victim depends on your understanding of property rights and the speed of information acquisition. This article explains the reality of gentrification advancing in Japan and the mechanisms—and dark side—of the rights conversion system.

What is Gentrification?

"Gentrification" refers to the phenomenon where redevelopment or urban regeneration drives up land prices and rents, economically forcing low-to-middle-income residents who originally lived in the area to relocate. The term was coined in the 1960s by British sociologist Ruth Glass, but it is now widely observed in major cities worldwide.

Japan had long regarded this as "a problem of other countries," but the situation is changing. The Japan Research Institute issued a warning in September 2025 titled "The Gentrification Problem Approaching Tokyo," cautioning that soaring housing prices are causing social division. The report noted that high-income earners with annual incomes exceeding 10 million yen now number over 1.6 million in the Tokyo area, and that dual-income households and highly skilled foreign workers are driving up demand for central Tokyo housing, while middle and lower-income groups are being forced to relocate to suburban areas. The loss of long-cherished local communities and the disappearance of social diversity—this is the reality silently advancing in Tokyo.

The Reality of Resident Displacement in Japan

Kyoto: "Invisible Eviction" Caused by Tourism

Gentrification in Kyoto is advancing not through large-scale redevelopment, but through touristification. According to 2024 accommodation statistics, foreign overnight visitors (8.21 million) outnumbered Japanese visitors (8.09 million) for the first time since records began. Accordingly, residences are being converted into guesthouses and lodging facilities, physically reducing the housing available for local residents.

Furthermore, according to new condominium market surveys, the average price of new condominiums in Kyoto Prefecture rose 30.6% year-on-year in 2024, an exceptionally high growth rate nationally. In the Kiyomizuzaka, Gion, and Arashiyama areas, "commercial displacement" is advancing, where local shops and everyday infrastructure are being replaced by businesses targeting tourists. Residents are not being directly asked to leave. However, as the cost of staying rises and the living environment transforms, effective displacement is occurring.

Osaka's Kamagasaki: Day Laborers Driven from Their Neighborhood

The Airin district (Kamagasaki) in Nishinariku, Osaka, is considered one of the most acute sites of gentrification in Japan. Redevelopment policies advanced under the framework of urban regeneration and regional revitalization strengthened gentrification pressure. There are said to be three patterns of displacement: direct forced eviction, indirect displacement through rising rents and lodging costs, and "displacement by atmosphere"—where the changing character of the neighborhood makes long-time residents feel unwelcome. Researchers and support organizations have repeatedly pointed out that homeless people and day laborers in the Airin district continue to face the risk of losing their living spaces due to redevelopment.

Shimokitazawa: The Transformation of Cultural Diversity

The "Shimokitazawa Line-side Development" project, redeveloping the track site following the Odakyu Line undergrounding, faced strong opposition from local residents and cultural figures. After a protest movement that escalated to administrative litigation, Odakyu Electric Railway shifted to "servant development" (supporting-type development), achieving a unique tenant composition excluding chain stores. However, rent levels continued to rise, and many small businesses that had operated there for years were forced to withdraw. The Shimokitazawa case is an excellent example of how difficult a "conscientious response" to gentrification truly is.

The Mechanism and Dark Side of the Rights Conversion System

What is a Type 1 Urban Redevelopment Project?

As explained in our Tokyo Redevelopment Area Major Projects Survey Report, most large-scale redevelopment in Japan is carried out as "urban redevelopment projects." Among these, Type 1 Urban Redevelopment Projects convert rights (ownership rights, leasehold rights, etc.) to land and buildings within the project area into floor rights in the redevelopment building at equivalent value—the "rights conversion method" (Urban Redevelopment Act, Ministry of Land, Infrastructure, Transport and Tourism "Urban Redevelopment Projects").

In the case of individual implementation, starting the project requires the consent of at least two-thirds of both landowners and leaseholders. This consent requirement has become a breeding ground for the "padding problem" described below.

The Reality of Leasehold Inflation Schemes

One case previously reported was a "leaseholder padding" scheme discovered at a redevelopment site in Nihonbashi. To meet the two-thirds consent requirement, a single plot of 83.63 m² (approximately 25 tsubo) was subdivided into 1-tsubo sections, with 30 companies each acquiring a share of the building and registering as "leaseholders." In practice, the same group held 30 votes' worth of consent, creating a structure where minority opposition voices were rendered powerless. Reports at the time indicated the intention was "to ensure the opposition wouldn't notice," highlighting both the cleverness and the problematic nature of the scheme.

Of course, such methods are not standardized practice. However, rights conversion procedures are extremely specialized, and it is difficult for individual landowners or tenants to accurately understand their contents. Information asymmetry exists as a structural reality.

Why is This Problem Hard to See in Japan?

The first reason is the weakness of tenants' rights. In Type 1 Urban Redevelopment Projects, "owners" and "leaseholders" of land and buildings are subject to rights conversion, but building tenants (commercial tenants and residents) are, in principle, excluded from rights conversion. They can receive compensation money, but the right to return to the same location after redevelopment is not guaranteed. This is a structural problem in the legal system.

The second reason is information asymmetry. Between project operators (major real estate companies and general contractors) and individual landowners or tenants, there is a significant gap in legal knowledge, negotiating power, and financial resources. Explanation meetings for landowner associations are held, but understanding the contents of a specialized rights conversion plan requires considerable expertise.

The third reason is the structure of media reporting. The "light" of redevelopment—completion images, economic ripple effects, land price increases—is actively reported, while the resident displacement and rights-related problems arising through the process tend to receive relatively less coverage. The cycle of the next redevelopment beginning before problems become visible continues to repeat.

Rights-Related Risks That Ultra-High-Net-Worth Investors Should Know

As noted in The Impact of Central Tokyo Redevelopment on Real Estate Values, investment in redevelopment areas offers significant upside. However, if you don't understand rights relationships, you risk unintentionally ending up on the "victim" side.

Risk 1: Disadvantageous Floor Position and Area After Rights Conversion
The position and area of floors allocated as a result of rights conversion are calculated based on the rights conversion plan. If you don't grasp the appropriateness of the valuation method and negotiation margin in advance, you may find yourself accepting unfavorable conditions.

Risk 2: Opposing Landowner Risk
Applications for project approval when less than two-thirds consent has been obtained carry the risk of administrative litigation. Delays or interruptions to the project schedule will affect investment recovery plans.

Risk 3: ESG and Reputational Risk
When investing in large redevelopment areas, if issues such as resident displacement or loss of cultural diversity come to the surface, it may affect your reputation as an investor (ESG assessment). Including the appropriateness of rights relationships as a factor in investment decisions will lead to long-term asset preservation.

INA's Perspective

I am not denying redevelopment itself. The renewal of aged urban areas and the creation of new value is a necessary process for the healthy development of cities. However, I believe that redevelopment must not degenerate into "a game for the powerful."

The opacity of the rights conversion process premised on information asymmetry, the design problem that tenants are excluded from rights conversion, and the existence of schemes that cleverly manipulate consent requirements—these are all contrary to the philosophy of city-building that should ultimately aim for "the happiness of all involved."

There is dual significance in ultra-high-net-worth investors paying attention to this problem. One is the practical significance of appropriately protecting their own assets. The other is the long-term, social significance of thinking together, as a society, about what more equitable urban regeneration should look like. INA&Associates Co., Ltd. will support investors in finding paths to participate in redevelopment as "beneficiaries" through the provision of highly transparent information.

Summary

• Gentrification is a phenomenon where redevelopment-driven increases in land prices and rents displace original residents, and the Japan Research Institute issued a warning about this in Tokyo in 2025.
• Resident displacement is advancing in Japan's unique context through Kyoto (touristification), Osaka/Kamagasaki (urban regeneration), and Shimokitazawa (commercial development).
• In the rights conversion system of Type 1 Urban Redevelopment Projects, schemes to artificially inflate the number of leaseholders to meet the "two-thirds consent requirement" have actually been reported.
• Tenants are often excluded from rights conversion and are structurally vulnerable under the legal system, being asked to leave with only compensation money.
• Ultra-high-net-worth investors can participate in redevelopment as "beneficiaries" by understanding the rights conversion mechanism, the balance of power among landowners, and ESG risks in advance.

FAQ

Q1. Is gentrification really happening in Japan?

A. Yes, it is definitely progressing. A report published by the Japan Research Institute in September 2025 officially warned of a "gentrification problem" in which soaring housing prices in the Tokyo metropolitan area are pushing middle and lower-income groups to the suburbs. Specific cases have been confirmed in Kyoto, Osaka, and central Tokyo.

Q2. What rights do tenants in redevelopment areas have?

A. In Type 1 Urban Redevelopment Projects, building tenants (commercial tenants and residents) are, in principle, excluded from rights conversion. They have the right to receive compensation money (business compensation, moving expenses, etc.), but the right to return to the same location after redevelopment is not guaranteed by the system. While it is possible to negotiate for relocation assistance, legal protection is limited.

Q3. Is the leasehold inflation scheme illegal?

A. It is considered a gray zone method exploiting legal loopholes. Subdividing a building's ownership share to create multiple leaseholders is not necessarily illegal under the procedures of the Civil Code and Land and Building Leases Act. However, there is criticism that artificially increasing the number of leaseholders solely to formally meet the consent requirement goes against the intent of the system (protection of minority opinions).

Q4. How should ultra-high-net-worth investors verify rights conversion risks?

A. At the investment consideration stage, we recommend confirming the following: ① The number of landowners and consent status within the project area (project approval applications are available as public information); ② The basis for calculating floor area, position, and assessed value in the rights conversion plan; ③ The existence of opposing landowners and the risk of administrative litigation. Detailed due diligence in collaboration with specialized lawyers and real estate consultants is essential.

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References

• Japan Research Institute "The Gentrification Problem Approaching Tokyo" (September 9, 2025)
• Ministry of Land, Infrastructure, Transport and Tourism "Urban Redevelopment Projects"
• Ministry of Land, Infrastructure, Transport and Tourism "On Pricing of Rights Floors and Reserve Floors"
• Urban Redevelopment Act (e-Gov Legal Search)