Soaring Costs Creating Choppy Waters for Urban Development Projects as Old Ways Reaching Limits

By Kotaro Yaginuma and Tomoyuki Momii / Yomiuri Shimbun Staff Writers

21:00 JST, December 5, 2025

Soaring construction costs are forcing developers to review their plans for urban development projects, with some slashing building sizes or even starting from scratch before seeking approval to begin breaking ground.

Urban development projects often become cornerstones of an area’s regeneration, making any changes to their plans impact overall community development.

Some observers have pointed out that the conventional redevelopment model, in which developers generate profits through the sale of condos in high-rise buildings, may be reaching its limits.

A major redevelopment project is being planned for an area near JR Hakodate Station in central Hakodate, Hokkaido. The area has been in decline in recent years. As of 2020, before the prefectural government green-lighted the initiative, the project’s plans featured a 25-story condo building, a hotel, an event venue for residents and other facilities on an about 10,000-square-meter site home to a closed department store and other businesses.

Every aspect of the project was expected to be up and running in 2026.

However, over the three years that followed, construction costs soared by about 20%. The construction companies, property owners and others behind the project decided to shrink the hotel from the 24 stories in the original plan to 11 stories, among other changes. The prefectural government approved the new plan in 2024.

Even after these changes, the project’s material and other costs have continued to climb.

“Sweeping changes will need to be made to the project” even though it has already been cleared, a senior Hakodate city government official said.

The costs are expected to significantly exceed the ¥17.6 billion price tag given when the project got the go-ahead. Moreover, the projected completion date of May 2029 will likely be pushed back to “fiscal 2030 or later.”

“Construction costs have risen more than expected, so it’s a real struggle to stay on budget,” admitted an official of the redevelopment association carrying out the project.

The head of the city government’s construction administration section expressed concern about the situation. “If public facilities are also scaled back to prevent further cost increases, it could affect efforts to revitalize that part of the city,” he said said.

Material costs up 32% in 4 years

Urban development projects based on the Urban Redevelopment Law, which took effect in 1969, have sprung up across the nation since Japan’s period of high economic growth. The projects typically aim to strengthen disaster-prevention capabilities, build public facilities and add vibrancy and energy to an area.

Prefectures and government-designated cities approve the projects, while the central and local governments provide subsidies to cover such costs as building demolition and compensating property owners.

As of fiscal 2022, 1,021 such redevelopment projects had been completed across Japan. A classic example is Roppongi Hills in Tokyo, a skyscraper complex containing company offices, condos and other facilities that was built on an area once crowded with wooden houses.

In recent years, about 20 such projects are given the go-ahead each year.

However, surging construction costs are making the redevelopment project landscape increasingly challenging. According to the Construction Research Institute, the Construction Material Price Index in Japan in 2024 had increased by 32% from 2020. Construction outlays account for about half the cost of redevelopment projects, and construction takes an average of about five years, making it a long-term expense.

“These projects are highly susceptible to the impacts of soaring construction costs,” said an official of the Japan Federation of Construction Contractors.

Recently, there have been cases in which redevelopment project plans were scrapped or suspended even before being officially approved. For instance, Tokyo’s Nakano Ward government, which had been seeking approval for a redevelopment project near the Nakano Sunplaza complex in the ward, withdrew its application from the Tokyo metropolitan government after it was revealed in October last year that the project would cost at least ¥90 billion more than the initial projection of ¥263.9 billion.

In June this year, the ward government terminated its basic agreements with those set to participate in the project. It now plans to hear the opinions of locals and then present a new plan in March, with a major overhaul of the original plan likely.

Buyers hard to find

At a time when some projects have hit the wall, observers have suggested the conventional redevelopment model might be reaching its limits.

In recent years, high-rise condo buildings and other residences have made up about 70% of buildings constructed through redevelopment projects. For developers, generating a profit mainly by selling condos is a tried-and-true business practice. According to the Real Estate Companies Association of Japan, however, many real estate agencies involved in redevelopment projects have reported being unable to find buyers for condos with hiked prices.

“It’s just not profitable,” one agency reportedly told the association, whose members include major real estate firms.

If redevelopment projects grind to a halt, their original objectives — strengthening disaster-prevention capabilities and rejuvenating an area — could also be jeopardized.

“Turning a profit by selling condos is an approach that’s reaching its limits,” said Tokyo Metropolitan University Prof. Shin Aiba, an expert on urban redevelopment and urban planning. “It’s vital that developers consider building facilities that serve a wide range of purposes, such as serving as industrial bases, and expand their options for making a profit. Public authorities and residents shouldn’t leave these projects entirely up to developers. They need to check even more closely than before what the purpose of such a project is and how it’s progressing.”