When a regulatory hurdle hit the Japanese housing sector last year, Tokyo assumed any delays would be short-lived. But almost a year later, a growing backlog of unsold homes threatens to dent already feeble economic growth.

Rather than making a modest contribution to overall growth, as the government had hoped, housing is now likely to offer little or no help, with one analyst suggesting that it could knock a full percentage point off growth this year.

"Developers are running their businesses on a hand-to-mouth basis," said Hiroyuki Ito of Azel Corp., a developer. "We cannot sit back on condominiums that are not selling."

At the root of Japan's housing debacle is not loose lending or the popping of a price bubble, as in the United States, but a scandal over falsified engineering data for new residential buildings that prompted an overhaul of regulations.
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