Disaster housing proves cash cow for general contractors

August 10th, 2011 by Philip Brasor & Masako Tsubuku

Temporary housing doesn't come cheaply (Kyodo photo)

An article in the Aug. 2 edition of the Asahi Shimbun reported that the average cost of constructing a temporary housing (kasetsu jutaku) unit in Miyagi Prefecture to shelter victims of the March 11 disaster has been ¥3.7 million, which is about 50 percent higher than the price stipulated in the revised Disaster Relief Law. Moreover, that figure does not include associated costs such as plumbing. When those costs are factored in the average price per unit skyrockets to more than ¥5 million. To put matters into perspective, many prefab housing manufacturers offer products, meaning full 3-bedroom homes, that you can have built for as little as ¥8.7 million.

The prefecture made deals with two associations soon after the quake and by June 22 had signed contracts to provide 17,510 units. One association consists of eleven companies that build prefabricated housing, while the other consists of 24 companies that “lease” prefab housing. The former companies would build houses from the ground up using all new materials, while the latter company would provide housing using materials “recycled” from other prefab constructions. The average size of each unit is 29.7 square meters. Obviously, the leasing companies’ units are cheaper, but they still ended up being more expensive than the legally stipulated price, which was ¥2.38 million per unit. In fact, the prefecture knew that when it accepted the bid from the association, which was ¥2.88 million per unit. As of mid-June, that price had risen to ¥3.45 million. But that’s nothing compared to the price of a fully constructed unit, which has climbed to as much as ¥5.1 million.

The reason the increase is not surprising is the “disaster bubble,” which anyone could have predicted. Because housing in the disaster area was at a premium and materials were scarce, the cost naturally rose. Moreover, construction companies would have to pay higher wages to attract enough workers to get the job done. Though the cost to both the local and central governments will be much greater than first estimated, such enterprise is exactly the sort of thing the stricken areas need in order to get their economies back on track. The problem is that most of the money being spent on this housing, which will start to be demolished in three years, will not stay in the region. It will go to Tokyo. Of the combined 35 companies building temporary housing in Miyagi, only four have headquarters in the prefecture.

For instance, Daiwa House, one of the biggest nationwide prefab home manufacturers, on Aug. 5 announced that consolidated sales for the quarter ending June 30 were ¥410 billion, or 15.5 percent higher than they were for the same quarter last year. Even better, profits were ¥13.6 billion, or 79 percent higher than last year and the highest since 2006. Sales of temporary housing in the disaster areas — 8,900 units in the three affected prefectures — accounted for ¥37.5 billion of these sales, a windfall since that amount wasn’t in the initial estimates for the quarter.

Tens of thousands of units were ordered in all three prefectures within weeks of the disaster, but because the demand was high and time was of the essence, the prefectural governments felt that the larger general contractors should get the bulk of the contracts. Iwate set aside 2,500 units for local contractors out of 14,000; Fukushima earmarked 5,000 out of 15,000 for locals; and Miyagi only 300 out of 23,000. The Construction Workers Association of Miyagi even petitioned the government for a larger piece of the action and complained that only two local companies were allowed in on the bidding. According to the Asahi, the local governments, in order to get things moving, “came to an agreement” before the bidding with the general contractors from Tokyo. As one representative of an unnamed big construction company told the paper, “Given the conditions, only national contractors could have done the job.”

In the end, there has been plenty of work for local laborers, but the companies they work for haven’t benefited at all. The Tohoku Construction Workers Association says that local sub-contractors are making about ¥100 per man-hour in profits from the general contractors as opposed to ¥1,000 per man-hour under normal circumstances. General contractors are just raking it in.

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2 Responses

  1. All horribly predictable, and depressing. How many cheaper, more eco-friendly offers did they get and turn down? An article in the Independent (http://www.independent.co.uk/news/world/asia/has-cronyism-wrecked-japans-longterm-repair-2308084.html)
    last month stated: “Shortly after the magnitude 9.0 quake struck Tohoku, the Japanese government sent out an international call for aid, which included a request for tenders to supply desperately needed temporary housing.

    The plea was answered by many hundreds of prefab housing suppliers, including UK-owned aid procurement company CK Mondiale.

    “We deployed to Japan within three days of the earthquake from our Malaysian offices. Within a week we had airlifted 380 tons of aid into Japan,” says Mondiale’s managing director, Hugh Mainwaring.

    While on the ground in east Japan, Mondiale then offered 12,000 fully completed homes in 60 days worth more than £440m, which Mainwaring claims satisfied all requirements from central government, including that of price.”

    The article also claimed the UN labelled Japan’s response to the crisis and that of a developing country.

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