How much was the Japanese Imperial Palace worth?

With the Japanese Emperor attempting to abdicate the throne this week, it is a good time to reflect on the significance of the event. While not odd historically (the Emperors in Heian Era resigned fairly often), this is the first resignation in the modern era. Whether he will actually be able to abdicate is unclear since constitutionally emperors are not allowed to do so, their roles are purely symbolic.

It may be interesting to look back to some events from the first year of his reign. Back in 1989 it was the height of the Japanese real estate boom and six years before the beginning of the Lost Decade. The real estate boom precipitated multiple economic bubbles that drove up values to amazing height. The crash that followed precipitated many of the current cultural and economic turmoils faced by Japan today.

Stories of excessive values are numerous. Fifteen years ago, I came across a statement that caught my eye. It read that during the economic bubble in Japan, the Imperial Palace could be considered to be worth more than all the combined real estate in California. I have always found this claim interesting, so I decided that this was a perfect time to look at the validity of that statement.

Cleary, the Imperial Palace was never on the market so we have to look at prices from “comparable” property values. Two values commonly cited are in the Ginza district, which borders on the Chiyoda district that includes the Imperial Palace itself. The first was for a 3 square meter corner sold for $600,000 dollars. The second one is $1.5 million per square meter ($139,000 per square foot) for office space.

The Palace itself, including gardens, is 3.41 square km. Using the three square meter corner as the base, the estimate for the palace is $852,500,000,000, a gigantic price tag for a single property. Even more astonishing, if we take the Ginza office space a reference point, the price balloons to over $5.1 trillion. For comparison, Japan’s GDP in 1989 was about 5.3 trillion dollars.

There are no available data about California’s total real estate value during that period. However, a back of-the-envelope calculation, using current values and factoring inflation rate, puts the total value of California’s real estate in 2015 at $2.45 trillion. The US inflation rate from 1989 to 2015 is about 1.91%. This comes to a range in value for all of California real estate to be from $1.6 trillion to an upper bound of $9.77 trillion.

All this suggests that the depiction that I read fifteen years ago might be true (presuming of course that the real estate values held). And thus providing an interesting example of what a runaway positive feedback loop can do before it finally runs out of steam. The economic crash that followed dropped real estate prices to approximately 1% of its price at their height, which triggered the Lost Decade era and brought an end to these sort of comparisons.