Jiro Yoshida

The Effects of Multiple Green Factors on Condominium Prices

This is one of the first researches on price differentials of green buildings in Asia. Using a rich set of data on condominium transactions and mandatory evaluation of environmental performance in Tokyo, we estimate the effects of itemized green scores on transaction prices. Although green condominiums are on average traded at a premium, the premium is mainly attributed to the building age and quality. After controlling for relevant attributes, we find significant price discounts for newly constructed green condominiums. However, green condominiums experience little depreciation at least during the initial years. Using itemized scores, we find that the long-life design mitigates price discounts, but other factors such as the use of eco-friendly materials, renewable energy, water reuse, and greening exacerbate discounts. Several possibilities are discussed including high future maintenance costs of green condominiums.This paper analyzes the transaction prices of green buildings assessed on the basis of multiple green factors. Our theoretical model demonstrates that the initial green premium can be negative but becomes positive as the building ages if a green building has a higher life-cycle cost and a longer economic life. Our empirical analysis of green condominiums in Tokyo confirms this prediction. We additionally find that the longer-life design is associated with a price premium, but the use of renewable energy and recycled materials and water is associated with price discounts. The price discounts are interpreted as the capitalization of a greater life-cycle user cost.

The Repeat Rent Index

We employ a weighted repeat rent estimator to construct quarterly indexes that expand the profession’s ability to make cross-sectional comparisons of housing markets. Our analysis shows that there is considerable heterogeneity in the behavior of rents across cities over the 2000–2010 decade, but the number of cities and years for which nominal rents fell is substantial; rents fell in many cities following the onset of the housing crisis in 2007; and the repeat rent and Bureau of Labor Statistics indexes differ due to sampling and construction methods.

Product Market Competition and Corporate Real Estate Investment under Demand Uncertainty: Product Market Competition and Corporate Real Estate Investment

This article theoretically and empirically analyzes the interactions among corporate real estate investment, product market competition and firm risk. In our model, firms own strategic real estate or lease generic real estate. Our model predicts that strategic real estate ownership is positively correlated with industry concentration and negatively related to demand uncertainty. Also, firm risk is higher for firms with more strategic real estate operating in a more concentrated market. This prediction arises because smaller investments induce greater market competition, which effectively eliminates the right tail of the firms profit distribution. We provide strong empirical support for our predictions. In particular, firm value is more volatile in less competitive markets for a given level of demand uncertainty.

Structure Depreciation and the Production of Real Estate Services

This study simultaneously analyzes the real estate production function and economic depreciation of structures by using data from Japan and the U.S. The estimated share of structure value is used to infer returns to scale, the land-structure substitution, and the structure depreciation rate. Real estate exhibits approximately constant returns in Japan, but decreasing returns in the U.S. Land and structures are substitutes in both countries. The land value ratio is 10% in Centre County, PA, but 60%-70% in Japan, reflecting the scarcity of land. The property depreciation rate is larger for newer and denser properties located further away from the downtown area in a smaller city. The property depreciation rate is smaller than the structure depreciation rate due to the effect of land and a survivorship bias. The bias-corrected structure depreciation rates significantly vary by property type and country: approximately 7% for residential properties and 10% for commercial properties in Japan in contrast with 1% for residential structures in the U.S. The median life-span of structures is 30-35 years for residential and 20-30 years for commercial properties in Japan.This study analyzes the real estate production function and economic depreciation of structures by using data from Japan and the U.S. Real estate exhibits decreasing returns in the U.S. but constant returns in Japan. Land and structures are substitutes in both countries. The property depreciation rate is larger for newer and denser properties located away from the Central Business District (CBD) in a smaller city. The property depreciation rate decreases with age and is always smaller than the structure depreciation rate due to the effect of non-depreciating land component and a survivorship bias. The bias-corrected structure depreciation rates are significantly larger in Japan: 6.4%-7.0% for residential properties and 9.1%-10.2% for commercial properties in contrast with 1.5% for residential structures in the U.S. The distribution of depreciation rates also varies significantly by property type. The land value ratio is 60%-70% in Japan but 10% in Centre County, PA, reflecting the scarcity of land. JEL Classification: E01; R21; R33; E20

Product Market Competition and Corporate Real Estate Investment under Demand Uncertainty

This paper theoretically and empirically analyzes the interactions among corporate real estate investment, product market competition, and firm risk. In our model, firms own strategic real estate or lease generic real estate. Our model predicts that strategic real estate ownership is positively correlated with industry concentration and negatively related to demand uncertainty. Also, firm risk is higher for firms with more strategic real estate operating in a more concentrated market. This prediction arises because smaller investments induce greater market competition, which effectively eliminates the right tail of the firms profit distribution. We provide strong empirical support for our predictions. In particular, firm value is more volatile in less competitive markets for a given level of demand uncertainty.

The Rent Term Premium for Cancellable Leases

This study analyzes the rent term premium for leases that can be cancelled by the lessee. We model the lessor’s trade-off between leasing costs and the cost of cancellation options based on the recognition that many leases are cancellable by lessees, and lease markets involve significant transaction costs. We demonstrate that, regardless of the expected future rents, the rent term structure is upward-sloping when there is no leasing cost but U-shaped when the lessor faces moderate leasing costs. Residential leases in Japan, which are all cancellable by tenants, exhibit the term structure that is consistent with our calibrated model.A model of the term structure of lease rates in a frictionless economy is developed and its predictions are compared with data on residential leases in Japan. The model shows that the initial lease rate for a cancellable lease must be set higher than that for a non-cancellable lease because the former rate will be repeatedly adjusted downward when the market rent decreases. More importantly, the term structure of lease rates is always upward-sloping for cancellable leases. Empirical findings show a sharp contrast with the theory. Fixed-term lease rates are often higher than open-ended long-term lease rates. Moreover, in the fixed-term lease sample, the term structure of lease rates is downward-sloping. The term structure is also heterogeneous by tenant’s income.

Energy Efficiency and Green Building Markets in Japan

This study presents a review of the extant studies on Japanese green buildings and a new empirical analysis of the relation between office rent, green building labels, and actual energy use. We provide evidence as to what causes the positive association between green building labels and office rents. We first show that sustainability-related features of the building are effective in reducing the actual consumption of electricity and water. After controlling for the effect of these observed sustainability features, we find that green labels have separate effects on the reduction of the consumption of electricity and water. Thus, various green features required by green building labels are effective in saving energy and water usage. However, green labels do not have a direct effect on office rents once we control for the effect of electricity and water usage. Thus, tenants pay a rent premium to green buildings not for a brand associated with green building labels but for material benefits of green buildings regarding lower costs of energy and water.

Inflation Rates are Very Different When Housing Rents are Accurately Measured

This paper demonstrates that inflation rates are significantly modified when they are based on the alternative quality-adjusted measure of housing rents constructed from a monthly statistic of landlord net rental income. The official rate was overestimated by 1.7 to 4.2% annually during the Great Recession but underestimated by 0.3 to 0.9% annually during the current expansionary period. We further demonstrate significant impacts of the modified inflation rates on Social Security and real gross domestic product. These impacts persist for a long term because the modified indexes are integrated of order one whereas the official indexes are trend stationary.

Why Do Team Projects Progress Slowly? A Model Based on Strategic Uncertainty

This paper analyzes the investment timing for team projects. Under demand uncertainty, it is valuable to maintain flexibility in future investment alternatives. However, one partys flexibility creates strategic uncertainty for another party, which causes the other party to choose a higher level of flexibility. This strategic complementarity leads to delays in investments in contrast to the case of accelerated investments for preemption. This strategic effect is also distinct from the free-rider problem because this study focuses on the second moment of payoffs. The model also provides a rational alternative to the status-quo bias in organizational decision-making.

Discretion or Delay? The U.S. Monetary Policy in the 2000s.

There is a debate whether the federal funds rate deviated from the Taylor rule. We present evidence that standard inflation measures do not reflect the contemporaneous state of housing rents, which is a large part of consumption. Using a new housing rent index (RRI) developed by Ambrose et al. (2015), we compute the RRI-based Taylor rule for the period from 2000 to 2010. The modified Taylor rule indicates that seemingly large deviations are better understood as delays due to the stale information regarding housing rents. It also provides a justification for Quantitative Easing and a better alternative to other versions of Taylor rules.