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Poorly built and often cramped, most Japanese houses barely make it past their fifteenth year, but, as homeowners knock them down and start again, more than £140 billion of household wealth vanishes into thin air every year. Now, according to a leading economist, Japan must kick this 60-year-old habit to ensure its long-term economic survival. Richard Koo, chief economist of the Nomura Research Institute, described as “perverse” the fact that Japanese homes lose every last yen of their economic value by the time they hit their fifteenth year. He has delivered this blunt appraisal of Japan's economic future to Taro Aso, the country's Prime Minister, arguing that better regulation and incentives were needed to stop people knocking down their houses so frequently. If not, the long-hoped-for recovery in consumer spending may never arrive, he said, and the housing situation could undermine the country's “make-or-break” stimulus bill. Mr Koo is understood to have played a key role in the crafting of the Government's 57 trillion yen (£382 billion) stimulus package. “I said that we have to do something about this atrocious housing market,” Mr Koo said. “We have to stop houses being consumer durables in Japan rather than the capital goods they are elsewhere in the world. Through better regulation, land must be used more efficiently. People have to spend more on the structures and less on the land itself.” Along with the stimulus package, there needed to be an unprecedented effort to improve the nation's housing stock, Mr Koo said. His thinking is beginning to underpin planned new legislation. Land prices should be stabilised and buildings constructed to last for many decades, according to new proposals. At present, arcane building laws impose fierce restrictions on floor space and the number of storeys that a building can have. That, in turn, squeezes property prices, which means that buyers spend so much on the land itself that they do not have enough money to build a high-quality home. The state of the nation's homes had made many people feel progressively poorer since 1990, despite the steady growth of Japanese GDP, the economist said. Unlike Britain or the United States, where houses function as a substitute for a savings account, houses actively destroy wealth for Japanese people. Japan's dwindling, ageing population builds almost as many new homes each year as that of the United States, where there are nearly three times as many people. With a situation such as this, Mr Koo said, there could be no happy ending. This perception of the housing market had worked its way into the national psyche, Mr Koo said, forcing people to squirrel away enough money to build an entire new house every couple of decades. “People in Japan think that buildings naturally lose their value over time,” Mr Koo wrote in a paper on the subject. “This philosophy entails a huge waste of resources. Japanese families scrimp and save to buy a new home, only to watch it lose one-fifteenth of its value annually. This process has been repeated year after year in postwar Japan.” With Japan effectively throwing away 4 per cent of GDP - or about Y20 trillion - on housing, it is no wonder that affluence was out of reach for most, he said. Stimulating Employment (1.9 trillion yen) Y700 billion safety net fund for temporary workers Y120,000 per month living costs for vocational trainees Finance Measures to stop shar