How to build a house Part 4. Paying for the bloody thing

Financing is the main thing stopping many people from building their dream homes. Still others are forced into building a house because they have access to finance​, and that may turn into a nightmare.​

Unless you are one of the lucky few with enough cash to pay for a house up front, you probably need to get a mortgage. Banks can decide who to lend, or not to lend to, but as with many things, the biggest factor is whether you want to borrow money or not. As Henry Ford said, "whether you think you can, or think you can't—you're usually right."

I've heard foreign residents in Japan say that banks won't lend to them if they don't have permanent residency and permanent employment somewhere. That's certainly true if they think it's true, and don't go and ask any banks.

If you want to get a loan, then get it while you are employed. The bank will be happier to lend if you have a steady income, that has been paid into your bank for several years. Before I got a loan I was worried that I would be stuck to my job forever. I was also somewhat scared of monthly repayments until I'm into my seventies. As it happens, after getting the loan I felt much less chained to my current job, and I hardly think about the monthly repayments. ​They're just like rent, which I had got used to paying. ​

Money used to be bits of metal, then it became bits of paper and later bits of plastic. Now it's just bits on a computer somewhere. It's not a particularly scarce resource, but that may be easy for me to say with an overly privileged background and a life of undeserved comfort​!​

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But​ whether you're paying in cash or from a hard-fought loan, the question remains: how much is the bloody thing going to cost?

It's like when you go to a restaurant and look at the prices on the menu. Except there are another few noughts on the cost of everything.

Glass of wine 300 yen. Light fittings: 300,000 yen.

Salad 500 yen. Bathroom: 500,000 yen.

Paint. You want paint?

This should not be surprising when you consider how big a house is.

The glass in our windows could have made a thousand drinking glasses, and the tiles on our floor could make a thousand ​plates. I don't want to think about how many chopsticks the wood could be split into.

It's important to understand the difference between price and cost​, which are not the same. Basically price is what you pay to get something, and cost is what the person who gives it to you had to pay. Businesses stay in business because of the difference between price and cost, and often the relationship is arbitrary. The price depends on how much ​the customer ​is able to pay, and how much other people are charging, not on how much it will cost the​ supplier to produce. The costs can't stay above the prices for long, unless that is funding another revenue stream​, as when Gillette sold shaving handles below cost, or even gave them away because they could make money out of the razor blades.

​House builders are in almost exactly the opposite situation. Once you buy a house from them, you will never buy anything from them again. In fact there is a chance that you will demand some extra work from them to fix the inevitable problems that houses come with. This means they need to ​make all their money up front.

There is a large margin on houses in Japan, ​and​ they will basically charge you as much as they can get away with. If you start asking questions, they can easily justify any price they want by producing pages of lists of items with prices to the yen. Most of these item prices will also have large margins either because they have hiked them, because they are list prices and the actual amount they pay suppliers is much less, or because they are over estimating numbers or lengths or weights.

You could pay anything between 10 and 50 million for a house. Paying more will not necessarily increase the resale value of the house. ​In Japan, the value is basically in the land. In most places land is​ a good investment​ because they don't make it any more so its ​value increases over time​. There are some fluctuations, so timing can make a difference, and the exact location could be vulnerable.

Building a house may not be a good investment in financial terms. But in terms of security it gives you a more solid foundation in the community, and also​ more​ psychological​ stability​, so is worth it if you plan to stay in Japan. Find somewhere you want to live!

​Building a cheap house may end up costing a lot more long term in heating and maintenance.​ These costs are usually not taken into consideration when you're building, but the heating bills are also coming out of your bank each month, just like the loan repayments. The difference is that one day the loan repayments will stop, but you're still going to have to pay for heating and cooling. Even when they do tell you how much the energy bills will be, actual heating and cooling costs are typically twice the estimates and simulations.

​Building a Passive House, or at least using Passive House software during the building process, will give a much more reliably estimate, and will allow you to make realistic comparisons between the cost of heating and the initial costs. ​

Could Passivhaus be cheaper?

Passivhaus, Herefordshire, 2016 

I don't just mean cheaper than it is now, but could Passive House be cheaper than a regular building. And I don't mean cheaper in the long term, but cheaper to build.

Low energy buildings, Pennyland, 1979

When we were building, we found in most cases the extra demands of passive house provided extra opportunities for builders and contractors to charge us more money. I think this was partly our fault for not finding people who were interested in changing the way they work, so rather than seeing our house as an opportunity to learn how to build better houses in the future, they saw it as a diversion from their usual practice. Where we did work with people who were used to working to rigorous energy specifications, I got a strong sense that they were able to charge more because they thought nobody else could do what they were doing, or because they were aiming for rich customers who just judged value by the price tag.

The theory behind Passivhaus is that increasing insulation means massively reducing the heating system, so extra costs insulating are balanced by lower costs installing a heating system. Since Passivhaus also required a ventilation system, and rather than removing the heating system it just scales it down, this seems like a challenge. The cost of extra insulation, structural changes to accommodate and support the insulation, airtightness barriers, increased window specs and ventilation system all need to add up to less than a fraction of the heating system. 

State of the art building, Lavenham Wool Hall, UK, 1464 

According to this report from the Passive House Trust, sponsored be AECOM, passive houses cost 3-8% more in Germany, where many are built to the standard. In the UK they typically cost 15-20% extra, although the extra costs are less for large projects, terraces, north-south oriented buildings, and projects where the design can change after tender.

But some people are saying that Passivhaus can, and will cost no more, for example Passivehouse Plus in Ireland give the builder's view on why passive house doesn't cost extra.

And Nick Grant says here that if you think Passivahus will cost more, it will!

Low cost, zero maintenance house, Japan
Twentieth century

And there is a best practices document developed in collaboration with EEBA, and Proud Green Building that asks this question: Can you build a high performance home without additional cost?

And they answer: YES!

Bird Table, Huddersfield,
Turn of millenium

You can Download your copy today! Which will tell you about putting a value on high performance, how to shift costs where they matter most, opportunities in green remodeling, builders' perspectives on achieving high performance, high performance home ratings and certifications, case studies and financial considerations.

Review: The Big Short (2015)

This is the first film review I've done. I briefly dabbled in review writing in a magazine that I used to put together at school, until we got a rather caustic letter from one of the people in the play I had reviewed saying, "the only thing worse than amateur dramatics is amateur criticism." So read on at your peril!

Film reviews have even less connection with low energy building than the nonsense I usually write, but this movie was about mortgages, and they have everything to do with building houses. Without financing, low energy buildings will not get off the paper, and unless you have extensive savings, or you are going to spend ten years building your house with the remains of your pay, you will be going to the bank to borrow money. If you are in Japan it makes financial sense to get a loan from the bank even if you have the money since you get a tax rebate for having a mortgage, but I digress from the content of the film.

The Big Short (2015) is based on actual events leading up to the economic crash of 2007 and 2008. For anyone who missed it, mortgages were considered as safe as houses for the banks lending money, while in the real world brokers were getting paid bonuses for giving as many mortgages out as possible, even so-called Ninja loans to people with no income and no assets.  

As I was getting my loan in Japan I had heard of people going to the bank and being handed actual cash from the bank manager, which they passed across the table to the landowners or the people building the house. In more "developed" economies, this money is just numbers on a computer somewhere. The bank is not lending you money that they have taken out of their safe and can count in front of you, but they are adding numbers onto a balance sheet somewhere. 

This makes sense so far, but the money needs to be balanced with assets. In a deregulated financial market, these debts are bundled and sold as mortgage bonds, then traded and tranched, tranched and traded. The movie has a nice scene with Jenga blocks representing the debts, and does a very good job at explaining financial concept in a clear and engaging way.

The Big Short follows four people who realised that a lot of the mortgages were not being paid back, and the bonds were being given more credit than they deserved. So they started investing money into the loans having too high a credit rating. This is the part I don't really understand. 

Financial institutions have a whole range of jargon that makes things very difficult to understand. There are two reasons something sounds difficult to understand. One is that it is a complicated system that inherently is difficult to understand. The other is that someone is bullshitting, to separate you from your money, or to keep them out of prison, or both.

I understand investing in a house or in land, since that has intrinsic value. I understand investing in stocks and shares because those businesses generate wealth. I understand investing in commodities. I understand that governments sometimes want to generate money and they will issue bonds, and I guess the countries they represent have value. I also understand that these things can be bundled together into funds. But when I hear of "financial instruments" like "structured investment vehicles" alarm bells start ringing. I know those terms are designed to make our eyes glaze over. 

The people who saw the impending collapse of the mortgage world put money into something called a Credit Default Swap, which is a regular payment that may lead to a payout if a loan defaults. I think I pay something like this for my own house loan. 

So I suppose I do understand what is happening here, I just don't understand why it is allowed to happen, especially with people's life savings. Putting money into something being valued too highly is gambling. This should be in Las Vegas, not Wall Street.

There is a precedent in insurance. Shipping was a dangerous business, and people could pay premiums to insurance brokers in return for large payouts if the ships sank and the cargo was lost.The idea goes back to the ancient world, and for example the Code of Hammurabi made provision for an extra payment on a loan so it would be cancelled if a cargo was lost. The first insurance policy independent of the loan goes back Genoa in 1347. The modern insurance industry grew out of London and you may have heard of a Mr Lloyd, who had a coffee shop there in the late 1680s frequented by ship owners. For a while anyone could take out an insurance policy on a ship being lost, but during the 19th century, there were problems with people gaming the system, leading to the Marine Insurance Act of 1906 and the concept of "insurable interest". This means that you can only insure against losing something if you have an interest in keeping it. The Life Assurances act of 1774 is an earlier example of this concept.

Nothing about insurance is in the movie, but it seems a hundred years later this idea had been forgotten, and so a group of investors were able to walk into Wall Street banks and effectively place these bets, which were later turned into financial instruments and sold to other investors.

The movie tells this story well, focusing mostly on four investors who saw the crisis coming. I like the way this film is billed as a comedy. Perhaps they wanted Jim Carrey for the Christian Bale character, Jack Black for Brad Pitt, and Ben Stiller for Ryan Gosling. 

I rolled off the couch laughing when the Brad told us that 40,000 people die every time unemployment goes up 1%. 

The few people who made millions out of banks failing may be quite amused. The people involved at every level with the irresponsible lending habits leading up to this crisis, who still have their salaries and bonuses, must be laughing all the way to the bank. Where they still work. 

One counterfactual idea strikes me though. What if, instead of trying to make money out of it, those clairvoyants had pushed the credit raters to look a bit more closely at the assets and start downgrading them? In fact, could their investment into the mortgage failures have helped the collapse? 

A house of cards will only fall down if you knock it, and to be honest since we came off the gold standard in the 1930s our whole economy has just been based on bits of paper. More recently it has been bits in a computer somewhere. 

The real story here is not about mortgages, but about shadow banking: financial institutions beyond the regulations of traditional banking. This steadily increased through the 1980s, speeding up in the middle of the 1990s, and by 2000 there was more money in shadow banking than in traditional banking. To take a extremely pessimistic view, this is like betting that you have a dozen broken eggs when you only have a box of ten eggs. And you are betting with the eggs. 

So is that the joke at the heart of this "comedy"? I'm still not really laughing yet. 

It's tempting to look at the four heroes of the story as important players in a financial system that is trying to buffer against risk, who helped expose problems in ratings of the mortgage industry. But it's more likely that they were out to make money from insurance payouts that in a moral system would have gone to people who had lost their savings or their homes, and that they were very much a part of the shadow banking system that still seems way too big. Rather than addressing the problem, they gave banks the opportunity to sell trillions of dollars worth of bets that the mortgage bonds would not fail.  

So what does this have to do with building a house then? Well, perhaps not very much, but when you are borrowing money, you might want to know where it comes from. Remember the Adam Smith line: if you owe the bank a hundred pounds then you have a problem. If you owe the bank a million pounds, then the bank has a problem.

Anyway, on a scale of one to three, this movie definitely gets a three.

Let me leave you with some words Woody Guthrie sang in the 1930s: 

"The gambling man is rich and the working man is poor

And I ain't got no home in this world any more"

Notes and References

The relationship between unemployment and death was not a joke, and data can be found on page 300 of Thomas, W. L. and Carson, R. B. (2014) The American Economy: How it Works and How it Doesn't, Routledge. 

See also: TUC (2010) The Costs of Unemployment, a TUC Briefing to Mark the European Year for Combating Poverty and Social Exclusion.

Östring Lilja, Sara (2010) Insurable interest in marine insurance: A necessity or an obsolete way of thinking? 

Is it worth it? Present value factor

Building a house is a series of decisions, and a lot of these decisions put one-off capital costs against month-on-month running costs.

For example you could add insulation somewhere that will save 10,000 yen every year in heating and cooling bills, and cost 150,000 yen.

The first thing to think about is how far into the future you are going to be making savings. Let's say it's thirty years.

So if you're going to save 10,000 yen every year for the next 30 years, how much is that worth? 

Well, at first sight you'd think it's 300,000 yen. But it's not that simple. You have to think about inflation and interest.

First, imagine you don't have the money. In that case to make the capital investment you're going to have to borrow it, probably from a bank who will charge interest. This means the capital will cost more than its face value. In other words the saving from the running cost is worth less.

Second, imagine that you do have the money. In that case, spending it means you can't invest the money somewhere else, so you lose out on the opportunity for earning interest. So again the value of the cash in hand, or wherever it is, is more than its face value, in the long run.

This can all be expressed as the present value factor, which can be calculated by this equation:

 F_pv = 1-(1+P) ^-n / P

Where P is the interest rate, and n is the number of years.

But what if you're bad at making investment decisions, and would probably have lost all the money? In that case, you will probably make the wrong decision here, too, so you can stop reading, if you haven't done so already. You probably stopped reading before the equation.

And what about inflation? If the prices are going to go up, then that 10,000 yen per year is going to be increasing. Won't that balance out the interest? Can't we just multiply the annual saving by the number of years after all? 

A cheque from the building society and a Japanese bank

A couple of weeks ago, I got a cheque in the post from my building society. Back in 1992 I started saving with the Ecology Building Society, based in Silsden, West Yorkshire. There is not much more to them than the name suggests: they are a society that supports ecological building.

I'd got a letter from them a little earlier saying that, after much deliberation, they had decided to close all accounts of non-UK residents. They said this was a result of the recent FATCA regulations, which as far as I understand give US tax officials power to investigate all the money in the world. Every cent, penny, kopek, and, if Greece leaves the Euro and they come back, every lepta. 

New regulations mean it is not possible for the Ecology Building Society to open new accounts for non-residents. While there are no regulations stopping them from keeping existing accounts, it would create extra bureaucratic complexity. In spite of my disappointment at no longer being able to save with them, if it means that they can tell the US tax officials to go away, then they have my full support. I would even endorse the use of stronger language.

When I got the first letter, I should probably have instructed them to transfer the cash to my other UK bank, in the hope that they are not going to follow the same path. Or perhaps I should have instructed them to transfer the money to my Japanese bank, but as usual I neither reached a decision nor an action, and a letter with a cheque enclosed duly arrived in the post. 

Now that I had a cheque, I decided to visit my local bank, just for fun. 

I have a sterling account there, as well as the yen account my salary is paid into, and a mortgage for the house and land. Paying a sterling cheque into a sterling account: how difficult could that be?

The first question from the woman behind the counter in the foreign exchange area of the bank was where the cheque came from. As a Japan tax payer, I'm liable to any income, in Japan or overseas, and the tax authorities will automatically investigate any large sums transferred, so banks must provide details of where funds came from. In this case it was my money coming from my account in the UK to my account in Japan, so there was no income, and no tax liability. I told them it was from the Ecology Building Society.

"What's a building society?" she asked.  

I should probably have been prepared for this question. I think she was doing quite well not to have asked, "What's a cheque?" This may have been the first one she had ever seen. It was certainly the first one I'd seen for a while. 

I didn't go into the history of building societies, from their beginnings in the Midlands in the late 18th century based on the principles of co-operation, and their subsequent spread in the north of England and around the country. 

The first building societies were terminating, so a fixed group of people would get together, pool their savings to increase collateral, start building the first member's house when they had enough, and all continue paying in to their mutual fund until the last person had built theirs. 

Next came permanent building societies that continued to add new lenders and borrowers. These continued into the twentieth century, reaching the high streets of every town and city in Britain, and probably responsible for the relatively high home ownership there.

Then came the 1980s and changes in regulations that let building societies act more like banks. At first sight this seems a good thing, but it led to a lot of demutualisation--a word as ugly as the concept it expresses. The 1980s was also the time the Ecological Building Society started, inspired by people who were trying to borrow money to build ecological buildings, but getting flatly rejected by the existing lenders. While the traditional building societies were merging with each other, being bought up by larger public limited companies, and selling themselves to investors and carpet baggers, the Ecology Building Society was founded on that deeply human idea of mutuality, by which it still holds. 

But instead of going into this history, I just told the woman behind the counter, "It's a kind of bank." 

My first visit to the Japanese bank took a good half hour, and we established that I'd need to show a statement from the building society, to prove that these were indeed my savings, and not income from some undisclosed nefarious activities. 

I wanted to know how much they were going to charge, and later she called to say it would be 2,500 yen, plus 600 yen for postage. This seemed extortionate, but affordable. 

The next day I went back to the bank, armed with the necessary documentation, and with a free morning. All seemed to go as smoothly as could be expected. After about an hour the documents had been photocopied, and I'd paid them the handling fee in cash, since it would obviously have been too complicated for them to charge it to my account there. The forms were all filled in, signed and stamped and I thought I could go. Then she said that she'd let me know how much they were going to charge for paying the money into my account in a couple of weeks, since it would depend on the exchange rate at the time it was paid in. 

I got rather upset then. I'd already paid them to take the cheque, and now they were telling me they were going to charge me again for paying the money into my account. The day before I had asked how much they were going to charge, and they had given me a price. Now they were telling me it was going to increase it by an unspecified amount. The woman's boss came over and showed me a tariff, which did indeed say that they would charge for money being paid into their foreign currency accounts. I suppose this was obvious to them. Not to me though. 

I told them to give back the cheque and the photocopies they had made, and that I would pay it in somewhere they did not charge for taking money. I've been contemplating sending them an invoice for my time. 

And the moral of this story is: don't try to pay cheques into Japanese banks.

But if you are living in the UK and have any spare cash, or if you're looking for a mortgage for a building project, please get in touch with the Ecology Building Society.. 

A passive house in Karuizawa

Another passive house in Nagano prefecture, this time in the much cooler city of Karuizawa. There are some great points in this interview. One interesting comment is about the trade off between the high installation and low running costs of low energy buildings, compared to the lower initial cost and higher running costs of buildings using fossil fuel energy. Since most people borrow money from the bank to build, the actual initial costs to the owner of the house are very low, since the bank will pay for them. Effectively there are two sets of running costs: utility bills and loan repayments. Since people in Japan can often get low-interest 35-year loans, the loan repayment is a fixed cost. On the other hand, the utility repayments, at least the fossil fuel component of them, seem very likely to rise for the foreseeable future. 

https://catforehead.wordpress.com/2014/10/31/passive-houses-a-conversation-with-kevin-meyerson

The variable rate hasn't varied for 5 years...

Talking of future-proofing...

I have a fairly good grasp of mathematics, but my understanding of numbers dissolves away when you start putting currency marks next to them. 

Our land loan has reached the end of the five-year fixed rate we signed up for, and we have to decide what to do next. 

If we do nothing, it defaults to a variable rate. Alternatively we could go for another five-year fixed rate, or a ten-year fixed rate. I just got a phone call from the bank, and heard some percentages--I think I heard 1.5% and 1.7%--but I really need to sit down and look at things in writing.

According to this website, the current floating base rate is 2.475%. In fact, the flexible rate has been 2.475% since February 2009. That dark blue line is not part of the grid, it is part of the data.

Is that some kind of joke? Isn't variable supposed to mean that it can vary? 

It looks like we would have done better getting that rather than the five-year fixed rate. 

I know past results are no indicator of future performance, so just because the floating rate has stayed the same for the past five years doesn't mean it will stay the same for the next five years. 

Whatever we do will probably be wrong. Going for the fixed rate seems the most sensible approach since we may be losing out, but it will be by a predictable amount from each month's salary. The risk is much less than going for a floating rate loan, and suffering an interest rate hike. 

The ten-year fixed rate is at a historical low of 2.9%, which surely means something. The rate the bank charges is a little more than 1% less than this. Of course the numbers don't know the history, and they are probably just as likely to keep going down. As long as interest rates stay above zero, the banks will still be winning.

On the other hand, talking of risk, perhaps we should leave it with the flexible rate. This would then cause the interest rates to go up, which would be connected to increased inflation, which would in turn mean that the value of our loan goes down, and we would be owing and paying less in real terms.

Inflation - Yes please!

Soon after taking office, the current prime minister of Japan announced a target of 2% inflation. For most of the twentieth century, in most places, 2% would have a been a target to get inflation down to. Not push it up to.

As far as my wallet is concerned, with a fixed rate loan, the higher the better. This means the value of my property goes up and the amount I owe goes down.

The biggest worry is sustained deflation. If salaries go down, money becomes more valuable and the value of my property goes down, it will be more difficult to pay interest and the value of the property will be less than the amount I owe. This would not be good, but I think it's unlikely to happen.

Although I stand to gain personally from inflation, politically it seems like a bad idea, and it would be much better if things just stayed around the same prices, and money kept the same value. This has been the case in Japan for most of the time I've lived here. 

I may be looking through rose-tinted spectacles, and I'm sure a crash will come sooner or later, but most people in Japan seem to be surviving in relative comfort and the the doom and gloom from economists about stagnation seems misplaced. There is certainly a declining manufacturing industry here, but I think that has more to do with natural cycles of boom and bust, and stagnation in schools, where innovation and thinking outside the box should be encouraged.

Inflation was certainly a great invention that gets people to put their money in banks instead of keeping it safe somewhere. At first sight putting your money in banks seem like a good idea, since they are paying out interest, but in fact the banks stand to gain the most, since you are giving them money. Overall, inflation favours wealthy people, as wealthy people tend to own a lot of things, and their wealth is not in cash. 

So I'm sure the economy will be fine. After all, so many powerful people have got so much invested in it.

Talking to the taxman

Spent most of yesterday going back and forth getting documents for the tax office. At work the other day, I had to fill in some forms about tax, and among the documents they had asked for was something about mortgage rebates. I'd got a postcard from the bank a few days earlier showing how much I'd borrowed and how much I still owed, with the words shomeisho, beloved of bean counters, at the top. When I showed the postcard to the kind and long-suffering lady who deals with these things, she asked where the other form was. The one the tax office should have sent me.

When it comes to tax I'm deeply ambivalent. Not only in the literal sense of the word: that I have both a strong feeling that tax should be paid and a strong preference not to pay it myself. In the more widely used sense of the word, I really don't want to have to worry about it. I don't want to spend my time thinking about ways to avoid or reduce it, and I don't want to spend hours digging through documents and filling out forms. Take a slice of my money and I don't mind--it's just little bits of paper and bits of metal. But please don't take away my precious time.

Especially when it's a rainy day in November.

On my first visit to the tax office, I innocently asked whether they had my form, and it transpired that I had not applied for tax relief on my mortgage. On this journey I had taken as many documents as I thought I'd need. I had not brought enough. A kind young man gave me an envelope with a long list of items to check.

I went back home again, picked up what extra documents I could, and then some, and prepared myself for a journey to the city hall for a document proving my residence, then back to the tax office, with an option of having to go up the hill to the local legal affairs bureau in case the deeds I had to my house were not good enough. Often documents will only be accepted if they have been issued within three months.

When I got back to the tax office, another man began to process my papers. There was a bit of discussion about when exactly we moved in. They will give ten years of tax relief, so this becomes an important issue. We actually moved in on 22nd December, 2012, so our tax relief began in that year, and we received tax relief for the remaining week of it, even though our loan didn't start until 10th January 2014, so the tax relief was zero. I had some memory of deciding our official moving date, and wondered whether I had registered the actual change of address in January 2014. It turns out I'd registered our move in December. There may have been a good reason for doing this, but it was probably just my determination that I wanted to move within that year. In the event, it cost a year of tax relief.

Also he asked where the deeds for the land were. It turns out that if you buy land, then build on it within two years, your loan on the land is also eligible for tax rebate. We bought the land in November, 2010, two years and one month before we moved in. This is another cost of our delayed building.

He also asked about Eco points. Yes, we did get Eco points, and no, I don't have the documents for them, I have a huge drawer full of documents pertaining to the house and cannot bring all of them. I probably should put all the documents relating to money together. Anyway, I had to go back home again and get the document showing how many Eco points there were. I pointed out that we didn't actually get the Eco points, but they all went to the builders. He wanted some proof for this too.  

He kindly suggested I could come back Monday, but no, I have work on Monday, so I'd be back later. 

He also asked me to bring my bank book. This was a good sign since it meant they were likely to be paying me something!

A couple of hours later, he'd put all the data in, and was talking me through the printed-out form showing how everything was calculated. The lower amount of the cost of the house and the remaining unpaid loan was used for the rebate calculation, so in the end the eco points didn't make any difference. 

Filing returns is not compulsory in Japan, except for earnings over 200,000 yen. Ambivalence is fine as long as you know you're not breaking the law. I have had an issue with some money I get for translation work for the city's art gallery. This is less than I need to declare for my income tax, so for the past couple of years I haven't declared and have been leaving my tax returns to the place I work. The last time I did file, the difference was only a thousand yen, which didn't seem worth the hours I had put in. But the city notices that the amount they paid me is not on my income tax, which they base city tax on, and insist that I declare it to them.  

So, in the process of filing my tax returns, the translation work went back in, along with an estimate of the expenses to earn that. I think that put me into a higher tax bracket. Anyway, as he was going through each step of the calculation, I was beginning to wonder whether the punch-line would be that the tax I had already paid was almost the same as what I should pay, and they would be paying the difference of 53 yen. 

In fact, I will get about 200,000 yen back, which should be arriving in my bank soon, so the day was not completely wasted. That was for last year, and a similar amount may come back for this year, and will not be taken out of my salary each month for the next seven years. Not bad for a day's work, and at the same time how terrible to think of it in those terms.

A roof over our heads

We've now paid off the two-year loan for the solar panels. That means that we own the roof over our heads. This is a great thing. We still don't own the walls or the land beneath us, as those are long-term low-interest loans, but at least we own the roof.

Perhaps we should have put the panels in with the builder's contract, but it seemed to make the financing easier to pay some of this up front and get a separate loan for the rest of it. The rate was higher, but since we paid it back in two years rather than thirty-five, the total cost of the loan was a lot less. The first thing the bank advised us when we put the loan application in was to cut the costs by taking some of the panels off the roof. This is strange because it was about the same time they published this report in Japanese which seems positive towards domestic solar.

Over the year and a half of generation, we've earned 47,000 yen per month on average, and paid 7,500 yen for our electricity bill. We sold 89% of what we generated, so without our panels we would have paid another couple of thousand yen on the electricity bills. 

At this rate we'll pay back the investment on the panels in around eight and a half years. I'm not sure who else the bank is lending to, but a return on investments in under nine years seems fairly healthy, and I really don't know why they aren't insisting that all houses they finance put panels on the roof, even offering to fund them in return for the electricity companies paying directly to the bank to repay them. 

In terms of kWh we've generated an average 36 kWh per day, which is a little over twice the 16 kWH we use. In terms of the amount of electricity we are getting for each kilowatt of solar panel we have installed, that's 1450 kWh/kW per year or 4 kWh/kW per day. 

I'm not exactly sure how much of the cost we can attribute to the roof and how much to the panels. I have a back-of-the-envelope estimate from the architect, printed out on an undated piece of A4 with some of the figures to the nearest yen, and some to the nearest 10,000, which compares the option we took with a conventional roof and solar panels installed on top. It compares an older quote from Rooftech for an integrated roof system of 4.44 kW (actually written as kWh) which was around 3 million yen plus an estimate of 1.35 million for the roof work needed underneath their roof, which ends up as 4.35 million; 4.04 million after getting the grant. The other quote was 2.4 million for 4.81 kW of panels, with a roof estimated at 1.81 million coming to 4.21 million; 3.87 million after the grant.

In other words, the integrated roof and panel system was more expensive than installing panels on a conventional roof, but only about 3 or 4 percent. It should be added that this was for around half the roof area covered with solar panels, and it's not clear what kind of roof the alternative was. Anyway, we chose to go for the integrated roof because it seemed well worth the potentially slightly extra cost for the simpler design elegance. 

Getting a good rate

Currencies trade around a fictional middle rate. This is always moving and you're never going to get it, unless you're on the trading floor, which these days would mean you are a computer. Banks have buying rates and selling rates, which typically add or take off 4 yen for each pound traded. Actually, as far as they are concerned, they are always taking the 4 yen, and as far as you are concerned, you are adding it. The bank always wins. They will also charge you for transferring from bank accounts in different countries.

Some banks allow you to hold accounts in different currencies, and let you change money between them. Businesses sometimes have accounts that will allow live trades, on the current market rate with a small commission rather than a published daily rate with a large commission. If you have one of these accounts, that may be the best way to trade. If you know someone who has one, you could ask them to help, but there is no guarantee that they will get the rate you want, when you want it.

If not, there are two other ways that will get a better rate than you would walking into a bank. One is a credit card with a bank in the currency you are trading from. Unless it's a debit card, withdrawing cash will likely be very expensive, but using the card for shopping will incur a charge of 2.75%, with a minimum of 2 pounds, so if you're buying something over 73 quid you're paying 2.75%, and anything over 50 quid is probably getting a better rate than you'd get from the banks.

Since my main worry is not so much getting a good rate myself as making sure the banks get as little of it as possible, the other way is my favourite.  I found someone who needs to transfer currency the other way. We came to an agreement to make transfers each month, based on the average rate over the last month. Unless the currency pair were violently swinging around the time of our exchange, both of us were better off as the rate was between the TTB and the TTS.

120 yen

This used to be the rate for a dollar, and it was alarming to see the pound keep dipping the wrong side of it.
The first time I came to Japan, the pound was around 290 yen, and it fell to 230 in 9 months. The yen kept climbing into the 1990s. Then towards the end of the millenium the pound started going up and the economists talked about the Japanese economy stagnating. Of course the economy was still working away, money was circulating from consumers to producers to employees, and most people were employed by somebody and consuming something, so things probably weren't so bad. Roofs were over heads and food was on tables. Not only that but petrol was in cars, software was in game computers and champagne was on the shelves in supermarkets. It would be like looking at my height and weight and seeing no change in the past twenty years, declaring that I was stagnating, and lamenting that I wasn't three metres tall weighing 400 kilogrammes.
Anyway, the growth stopped by Summer 2007 when the pound was 250 yen. Then the wheels fell off the western economic bus. Perhaps "bus" is not a particularly appropriate metaphor for the western economy. It seems to have turned more into one of those sports cars that are great for the driver, but not very good for carrying other people.
This graph has nothing to do with temperatures, but you can definitely see some trends as different economies heat up and cool down. At one point it looks like one boiled over and spilt out of the pan and into the fire.

This all relates to our house since some of the financing came from savings in sterling. If I'd had a crystal ball and knew that I was going to be getting some land, that the western economy was in for a wobble, and that the yen was about to become a safe haven as the least-bad option for cash to flow into, I would have transfered a lump sum in the summer of 2007. As it was, and as usual, rather than doing it when I could have or should have, I left it until I had to.
If I'd had more sense, whether or not I'd had a crystal ball, I would have started transfering sterling in regular lumps as soon as we decided on the land. At the time the rate seemed so low and the pound so weak that I ought to borrow as much as possible in yen and save the sterling for later when the pound would surely be stronger. Of course it didn't get stronger. It got weaker.
Past performance is no guarantee of future growth. I was comparing the yen to my ideas of what it related to in sterling, but the two currencies were blissfully unaware of my opinions. A rate of 160 yen to the pound may have seemed very poor when I was buying the land, but it looked pretty good when the building bills started to come in and the pound was heading to 130. It still looks pretty good today when the pound has climbed a mountain and the rate is around 145.
With a currency pair, only one thing is certain. The rate will either get better, get worse or stay the same. There may be different probabilities for each outcome, but it will certanly be one of them. So the most sensible thing to do if you know you need to transfer money over the next couple of years is to start moving it, steadily.  The next question is how.

Rogues and charlatans everywhere

I just paid the fees for registering the building in my name. 233 thousand yen. Almost a quarter of a million yen. That's more than a month's salary for a lot of people. 

Fifty thousand of this was tax. Stamps bought to keep the beaurocrats happy. You could argue that that is lot of tax, but to be honest as far as I'm concerned it's all tax. The fact that only 50,000 yen of it is going to real tax actually means that the tax collectors are only getting a quarter of what I'm paying. They are loosing 75% of it. Gross inefficiency.

I suppose I don't really begrudge the authorities duty and bureaucracy but it's a fair whack for an afternoon's work for a couple of lawyers.

Rogues and charlatans everywhere.

When we bought the land, the estate agents were taking a percentage for selling something they didn't even buy. 

The architect charged to draw our ideas and then say they were his. 

All the while the lawyers, accountants and tax collectors hover.

Solar sell out

We got the first electricity bill, which was for 45,000 yen. When I say bill, actually that's what they are going to pay us. The actual bill--what we have to pay them--came a few days later for 12,000. It should be a bit less than this once we get the heating and hot water sorted out. 

The 45,000 yen is based on 951 kilowatt hours, for each of which they pay us 48 yen. The counter on the display panel went over 1000 kWh on 24th January, so in the first month we generated slightly under a megawatt hour and we sold almost all of this. 

When we buy electricity, there are three different time zones:

Off peak "Night time" is between 11 pm and 7 am at 9.33 yen per kWh. 

"At home time", 7 to 9 am and 4 to 11 pm, is 21.23 yen per kWh.

"Day time", 9 am to 4 pm is 31.43 yen per kWh.

In terms of our electricity production, although there's a fair bit of difference depending on cloud cover and temperature, it follows the geometry of the sun's arc across the heavens, and in the middle of winter comes in from around 7 in the morning till 5 in the evening with most of the generation between 10 am and 2 pm.

There is a single wire coming into the house from the grid with two meters on it. When we're using more power than we're making,  electricity comes into the house, and adds up on the spangly digital meter. When the solar panels are making more power than we're using, electricity goes out of the house and adds up on the clockwork meter. I thought the reason for their meter being different to our meter was some kind of discrimination, or that it would be easier for them to misread and pay us less, but apparently it's because the meter for electricity we buy has to distinguish between electricity at different times, while the electricity we sell is all at the same price, so it just needs to clock up.

Ideally, as far as our domestic finances are concerned, we want to only use electricity during offpeak hours - 11pm to 7 am, when we can buy cheap electricity, and each kWh is costing us around 9 yen. Then, while the panels are generating, we don't want to use any electricity as we would lose 48 yen for each kWh that we don't sell. 

Of course this is not entirely possible, and sometimes we need to use electricity in the middle of the day. We're also talking about a few yen here and there, and it may not make a big difference, although if those yen are adding up every day over the next ten years they will. 

None of this is going to make a big difference to global warming or carbon emissions. Whether we use the electricity at night time or day time is not going to change the total electricity consumption. In fact in view of line losses, it may be better for the environment for us to use all of our own electricity and stop using cheap night-time electricity. 

The only way this penny pinching is likely to help in the grand scheme of things is by increasing awareness of our power consumption. 

IOU

Went to the bank to sign the contact for the loan to pay for the house the other. As usual, this wasn't just a simple process of signing one piece of paper, but there were over a dozen, including insurance forms and proxies. I wrote my address so many times that I was beginning to go into a calligraphic trance. I stamped my inkan 37 times. And have since had to go back twice to stamp more papers. This included one re-doing where my stamp only left a partial impression, ten stamps where the wrong numbers had been put in and we had to change them, and a couple of wari-in on the fold between two stapled sheets of paper to show that they were part of the same contract.

Part of the complication was that we'd changed from the original plan of getting the loan for the land and the loan for the house from the bank. The loan for the house is now a Flat 35, which is a government-run scheme entailing low, fixed rates for higher spec buldings. The original bank loan was 1.77%, fixed for five years. By UK standards this is already pretty good, but the Flat 35 is 1.31% for the first ten years, then up to 2.01% for the next ten, and 2.31% for the last fifteen.

Insurance - the white man's burden

Apologies to the Goon Show for the title. This was an episode in which Neddie Seagoon was sold the rights to the English channel at a real bargain, with the only catch that he had to insure his new purchase, against fire. You can probably hear it here if you wait long enough: http://goons.fabcat.org/.  Also apologies to anyone who finds the Kipling work offensive. 

I was talking to a teacher in the economics faculty the other day, and he asked how I was going to pay for my house. "I don't know," I replied, "I thought you were the one in the economics faculty." In fact he teaches constitutional law, not economics and most of the time I was trying to convince him that England doesn't have a constitution.

The insurance man came around in the morning. At the moment, he just insures our car, but we're looking at getting some insurance for the house. Fire and earthquake insurance are both available. He confessed that until March he'd been advising people against getting earthquake insurance in  Matsumoto, although has changed since the big one in the North East, and one in Matsumoto in June that was smaller, although with a magnitude of 5.5 was the biggest around here for a long time. 

Insurance seems to me a bit like gambling, only the other way round. There is a chance you could lose, and if you pay a relatively small sum, that chance will go away. If there is a fire, or an earthquake, then we could lose our home, and if we haven't paid off the loan yet, we would still owe money on it. If there is an earthquake big enough to seriously damage the house, then unless it's very localised, it will have damaged schools, businesses and local infrastucture so our house, in the grand scheme of things, is not going to be so significant, but having something afterwards may be a great help. 

Buying lights

Just spent about 300,000 yen on lights and fittings for the house. It took most of my Sunday morning.

It seemed like a good idea to get these directly for three reasons. Mainly, getting light fittings straight from the internet saves money. The builders charge at least 80% of the list price, passed on from the electricians. You can usually get lights for about 40% of list price on the internet. So this should have saved a fair bit. There is probably some hidden cost somewhere, and the electricians may charge extortionate corkage.

I used kakaku.com, which is a site for finding mostly electrical goods. This usually took me to a merchant on Rakuten.com, which is a large online shopping site, the Amazon of the East. I also searched directly on Rakuten. 

The process of choosing lights was a labourious one. Different manufacturers have huge numbers of subtly different products. One of the big electrical manufacturers in Japan brought out 120 new LED fittings in April. 

The main numbers that can be compared are wattage, lumens, CRI, angle of beam and price. They seem to be getting better, but in some cases, some of the figures were missing for some manufacturers.  Of course design is also an issue, especially for brackets and spots, but for down lights there's not much to chose from.

We want lights that will come on and switch off automatically in seven places around the house: the entrance, the kitchen, the utility room, the bottom part of the staircase, the top part of the staircase and the two toilets. In terms of design we wanted single fittings that included a light and a sensor, but at first these were not available with LED fittings, and we needed separate sensors to the lights. Since then, Koizumi brought out single-fitting light sensors, which came out a little cheaper than buying lights and sensors separately, and superior in terms of installation and design.

All of these decisions went into drawing up the list of fittings over the past six months, with a lot of help from the architect who found a lot of them. I had been talking about LEDs for the previous 18 months, mostly to derision,as I mentioned before. There are many calculations showing that it's not worth switching to LED, but those are mostly out of date already, and if not will be very soon.

The revolution in lighting design, heralded on Panasonic's webpages with their snippets of useful information, does not yet seem to have brought many revolutionary products, although it's early days.

I decided to stick to the lights we'd chosen on the list we talked to the electrician about at the end of August. I'm sure in the interim some better ones have come out. Some of the prices had dropped since then. 

I managed to find almost all the lights from one merchant, Prizuma, which had the cheapest every time. Things were going well until I hit the "next" button with my full shopping cart, and went onto the instructions to pay. No space to enter credit cards. Bank transfers or cash-on-delivery only.

Another reason for getting the lights myself, rather than putting them into the builder's invoice, was that I can pay for them with a credit card. Part of the financing, unfortunately, is coming from sterling. At the moment, the value of sterling seems to be falling in the same direction at the cost of LEDs is, but that is another story, that I shall tell sooner or later, with great pain.

One way of getting sterling into yen is to buy things on a UK bank credit card. The credit card companies charge something for the exchange, although it's often less than the banks charge, and there is no transfer fee. 

So, having spent the whole morning getting all the LEDs lined up into the order for Prizuma, to no avail, I had to go back to Rakuten and find other merchants who would take credit cards. This didn't take as long, now that all the lights were decided.

That was not the end of the story, as Rakuten still had my old credit card on their records, which expired last January.  

Buying things online has got a little easier in recent years, with auto fill in functions and websites that will remember data you entered on their forms. I remember my first experiences having to completely re-enter several pages of forms, several times, for example for missing out a hyphen from the middle of a telephone number. I also remember having problems on Japanese sites with my name, as it did not contain any Chinese characters, which the field required. 

When I went back to try to correct the credit card expiry date, I noticed some recommended purchases, which Rakuten bases on what I've been buying, in much the same way that Amazon does. The number one recommendation was medicated scalp-d shampoo for oily hair. Something surely wrong with their algorithm.

I sent the new card details in, but since got a message that the payment had been refused, so I had to call my bank in the UK and ask them very nicely to let me use my money. They quite often query payments made in Japan, even though I've lived here for over a decade.

The lights should all arrive in the next couple of days, which will be exciting!