3

Both are Island countries, the UK's cost of living is 63.6, and Japan cost of living is 54.3 (reference).

Yet Japan has a higher quality of life index.

Why UK have that additional 10~ cost of living index? And will the UK have any policy in the future to lower it?

4
  • 2
    Measuring cost of living or purchasing power is notoriously difficult, essentially because different people have different preferences and adapt their purchases to different relative prices. Quality of life is a highly subjective indicator which includes lots of non-monetary factors. At the very least, when comparing cost of living you should also include differences in income.
    – quarague
    Aug 4, 2023 at 6:49
  • 2
    I believe it is mostly due to high costs of rent / real estate in the UK.
    – alamar
    Aug 4, 2023 at 8:21
  • This question is too broad in its focus, to prone to being answered with opinion and not really concerned with politics or political processes. Voting to close. Aug 5, 2023 at 16:42
  • Please define too broad. "Will the UK have any policy in the future to lower the cost of living index" - about politics. Besides, what I seen for the answer so far, they are not necessary opinion based only, they have proper data and logical reason behinds. Flagging for unfriendly comment. Aug 7, 2023 at 2:29

3 Answers 3

12

These are two very different islands - especially for supply chains

Their similarity stops at being surrounded by water. Japan is a thin island with lots of mountainous regions and high density cities whereas the UK is more spread out. The more spread out your final destinations the more expensive your route.

The below shows the % of the population which is considered to live in a rural area. Comparison of UK and Japanese Rural population % Link to source

Shipping is the most economical method of transporting goods and so, with shorter routes by truck or train, the closer your end user is to a port the cheaper that supply route is. This is one possible reason why goods may be cheaper in Japan where large population centres are placed along the thin shoreline.

Japan's highest imports from a single country comes from China (22% in 2022) where the route ships must take is much shorter. The UK also imports more from China (14% in 2022) than other countries. The UK is roughly 19 thousand km from China by sea, Japan (Shanghai to Tokyo) is around 1.9 thousand km - a tenth of the distance. Simply by fuel costs that shipping is cheaper too.

TLDR; Japan is a more coastal and densely populated country than the UK, situated closer to it's main source of imports. As such the shorter and less diverse supply chains can be shorter.

This is far from the only reason with housing and culture impacting (amongst others, I'm sure) but since you began by comparing geography I took that as my starting point.

2

The cost of living index in the U.K. and Japan, respectively, have the following components:

Cost of Living Index Rent Index Cost of Living + Rent Index Groceries Index Restaurant Price Index Local Purchasing Power Index
UK 63.6 31.0 48.1 50.2 73.3 94.3
Japan 54.3 17.8 36.9 56.4 34.3 94.3

The source describes what goes into each of these indexes:

The cost of living indices provided on this website are relative to New York City (NYC), with a baseline index of 100% for NYC. Here's a breakdown of each index and its meaning:

Cost of Living Index (Excl. Rent): This index indicates the relative prices of consumer goods like groceries, restaurants, transportation, and utilities. It excludes accommodation expenses such as rent or mortgage. For instance, a city with a Cost of Living Index of 120 is estimated to be 20% more expensive than New York City (excluding rent).

Rent Index: This index estimates the prices of renting apartments in a city compared to New York City. If the Rent Index is 80, it suggests that the average rental prices in that city are approximately 20% lower than those in New York City.

Groceries Index: This index provides an estimation of grocery prices in a city relative to New York City. Numbeo uses item weights from the "Markets" section to calculate this index for each city.

Restaurants Index: This index compares the prices of meals and drinks in restaurants and bars to those in NYC. Cost of Living Plus Rent Index: This index estimates consumer goods prices, including rent, in comparison to New York City.

Local Purchasing Power: This index indicates the relative purchasing power in a given city based on the average net salary. A domestic purchasing power of 40 means that residents with an average salary can afford, on average, 60% less goods and services compared to residents of New York City with an average salary.

The exact components of the index not broken out separately in the chart, are clothing and shoes, sports and leisure, transportation, and utilities.

Thus, the literal reason that the cost of living index in the U.K. is 17% higher than the cost of living index in Japan because the relative prices of consumer goods like groceries, restaurants, transportation, and utilities, but not including rent or mortgage costs, is lower in Japan by that amount.

We also know that groceries are actually more expensive in Japan than in the U.K., that restaurant prices are almost half as low in Japan as they are in the U.K., that overall purchasing power is almost identical, and that rent is much cheaper in Japan than in the U.K. (even though rent is not part of the Cost of Living Index).

A plausible explanation for this difference is (1) that real estate prices other than residential rent, such as rent for commercial buildings, is lower in Japan than it is in the U.K. in much that same way the rent is, and (2) that lower rent costs for workers allow Japanese companies to pay their workers less than U.K. companies. Due to market competition between providers of consumer goods, these savings are in turn passed on to purchasers of consumer goods.

For example, Japanese restaurants are probably less expensive because they probably pay less rent for their locations, and probably pay their servers less than U.K. restaurants do (which the servers can afford to accept because their rent is lower), which allows them to charge lower prices despite the fact that they are paying more for the food itself than restaurants in the U.K.

This explanation is plausible because both Japan and the U.K. have a very large share of their populations in major cities, and real estate prices in the major cities of Japan are the lowest of major cities of comparable size relative to income of any country in the world.

Japanese lower real estate prices, in turn, are mostly a product of the fact that land use regulations (e.g. zoning and historic preservation) laws, are established at the regional level rather than at the low level. For example, one of Japan's zoning regions includes 25% of the land area of the entire country.

This locus of land use regulation leads to very different political pressures on officials drafting land use regulations and are as a result very permissive relative to those in the U.K. which has tight land use regulations which drive up real estate prices.

3
  • 1
    UK's higher real estate prices a product of immigration pressure, i.e., a large number of people outside UK wishing to move in UK and occupy some real estate.
    – alamar
    Aug 5, 2023 at 7:12
  • 2
    @alamar While this is a theoretically plausible cause of the U.K.'s higher real estate prices, it is very likely not the correct one. Japanese real estate price have remained low in major cities with immense internal migration to them.
    – ohwilleke
    Aug 5, 2023 at 8:44
  • It wasn't always like that: scmp.com/magazines/style/news-trends/article/3091222/…
    – alamar
    Aug 5, 2023 at 8:55
2

Respectfully, both answers so far miss two things:

  • the situation in not systemic, but rather situational. Japan's cost of living used to be very expensive. So any explanation focussed on the why needs to take that into account.

  • and, bigger point, Japan went through approximately 3 decades of deflation, which is precisely this, a drop in the cost of living.

Foreign Policy APRIL 25, 2022 - Japan Finally Gets Inflation—but the Wrong Kind

For Japan, the costs of more than two decades of deflation are clear. The country remains prosperous, safe, and comfortable, but what many Japanese have not noticed is that the rest of the world has been getting richer in absolute terms, while their country has largely stayed in place. Average annual wages have risen a mere 3 percent over the past 30 years, according to OECD data, compared to a 47 percent gain in the United States. Prices have followed a similar trajectory. Tokyo was for many years ranked as the most expensive city in the world, but Japan’s capital today is not even among the top 10 in most global rankings, with cost cutting, a gradual lowering of tariffs, and greater import substitution helping to bring prices down.

not all that relevant to the question, but Japan is also very indebted

Deflation is no joke. The Economist has been covering its nasty effects in Japan for... decades too. The main thing is that the prospect of lower future prices makes it rational to put off purchases, thus lowering demand, thus adding more deflation... Don't wish it on the UK.

To break out of this, the central bank has for the past nine years flooded the markets with cash, an unprecedented program that made it the buyer of virtually all new government debt. And with government tax revenues covering just 60 percent of spending in an average year, there is a lot of debt to be bought.

This creates two big problems. The Japanese government is the most indebted country in the world, with a total debt equal to around 190 percent of annual economic output.

Last, since 2010, Japan now has a shrinking population, which ought to also drive down aggregate demand and prices. Not least in housing (though a lot of the low occupancy is happening in emptying countryside towns and villages).

You must log in to answer this question.

Not the answer you're looking for? Browse other questions tagged .