Yoko Moriizumi

Targeted saving by renters for housing purchase in Japan

Abstract This paper examines the extent to which wealth accumulation for housing purchase increases household savings and suppresses consumption. The study employs an estimation method based on simultaneous equations with limited dependent variables developed by Nelson and Olson to examine the relationship between wealth accumulation and housing purchase plans, using data relating to young Japanese renters. The estimation results provide evidence that young Japanese households severely reduce their consumption by around 30–40 percent.

Current Wealth, Housing Purchase and Private Housing Loan Demand in Japan

Japanese households accumulate wealth for down payments at a high rate. Therefore, current wealth plays an important role in home acquisition as well as public loans whose direct mortgage lending is a strong support for home purchasers. We estimate the wealth effect on private mortgage debt as well as housing consumption by applying a model where mortgage-debt demand is derived from house-purchase decisions and is determined jointly with housing consumption. We use a simultaneous equation Tobit estimation method. Wealth effects on private mortgage debt, likelihood of borrowing, and housing consumption are not elastic. On the other hand, a change in housing consumption affects the likelihood of borrowing elastically much more than the private mortgage amount of borrowers. Housing and private mortgage markets fluctuate very closely with the number of participants in the mortgage market. Therefore, the number of housing starts is linked strongly to the private mortgage market.

Efficiency in housing finance: a comparative study of mortgage instruments in Japan

Home ownership is the most desired form of housing tenure around the world for reasons of security and certainty. Owning a house presents a struggle for families virtually everywhere: for example, in Tokyo a typical house can cost around five to six times the yearly earnings of a family. Many families simply do not possess sufficient funds to purchase a house with equity. A universal alternative to equity-based financing for outright purchase before taking possession of a house is through debt financing. Debt in total housing finance in Japan is around 60–70%. Housing finance systems struggle to create instruments that will efficiently finance the purchase of owner-occupied housing. Design of mortgages depends on the nature of the housing system, the allocation of risk and the economic and institutional factors in a country. The present paper focuses on housing finance arrangements in Japan. Mortgage loan funding in Japan is characterized by heavy dependence on government treasury investment, which is based on subsidies. The last decade virtually eroded the capital base of financial institutions due to non-performing loans and forced them to restructure their business models from lending to industrial enterprises to financing home purchases. Coupled with the price crash in property markets, after the bubble era, debate on the current housing finance system has emerged. Currently Japan is restructuring its housing finance institutions by redefining the role for the public sector. This paper contributes by analyzing the efficiency with which the mortgage market delivers mortgage credit to home-buyers in Japan.

Credit constraints and the delay of homeownership by young households in Japan

Purpose Japan has been suffering from a decline in the rate of young adults homeownership for a long time. The reduction of the homeownership rate for young adults suggests a delay of tenure transition from renting to owning a home. Such delays further imply that there is insufficient wealth accumulation and a low level of welfare. This paper examines these influences of the credit rationing and the credit rationing impact on the reduction in the young adults’ homeownership rate. Design/methodology/approach Credit rationing impacts the timing of house purchases and the value of the houses at the same time. This paper estimates these impacts jointly using a simultaneous equation system (minimum distance estimation) and the micro data on Japan. Findings This paper divides the effect of credit rationing on the timing into direct and indirect effects. The former is the rationing effect on timing, keeping the other variables constant, while the latter is the effect via changes in house values. This paper finds that the indirect effect reduces the rationing effect on the timing by decreasing house values. Furthermore, the results show that credit rationing delays home acquisition by prospective young owners (direct effect) and necessarily lowers the quality of houses they purchase. Originality/value In the previous papers, the endogeneity among the variables related to the housing purchase was not addressed. To separate the endogeneity of the timing from the house value, this paper applies the simultaneous equation model. Furthermore, this paper exhibits that there are direct and indirect effects of credit rationing on the timing of housing purchase made by young households. None of the previous papers recognize these two effects.

International Comparison Analysis of Housing and Mortgage Markets; Australia, Japan and the United Kingdom, Case of Japan

This paper is part of the project of the international comparison analysis of household behavior of mortgage choice and its demand. It includes Australia, Japan and the United Kingdom. Before the estimation of the household mortgage choice and the mortgage demand functions using the pooled data of three countries, a brief survey of demographics, macro economy, financial conditions, housing market, and mortgage market in each countries are presented. This paper provides the case of Japan. Japan has been suffering from deflation for a long time and sluggish economy as well. Japan experiences population decreasing and rapid aging, jointly with fertility declining, which affect negative impact on potential growth rate. These demographic factors impact the timing of purchasing house, especially young households. Young homeownership rate has been declining for several decades and still low compared with other countries. On the other hand the homeownership rate on average is almost stable for decades. In the wake of population aging and fertility declining, vacancy rate is growing for several decades. Deflation still continues and GDP growth rates are still low, sometimes being negative. After the Great Financial Crisis (GFC) housing market has been stagnant and then also does mortgage market. There are various kinds of mortgage instrument in Japan; from ARM (Adjustable Rate Mortgage, Variable Rate Mortgage), short-term FRM to long-term FRM (Fixed Rate Mortgage). Therefore borrowers have potentially a large option for selecting instrument, which especially induces borrowers’ smoothing refinance jointly with lower fee for it. Recent historically low interest rate policy by BOJ (Bank of Japan) is supposed to induces household to take up housing loan, however, mortgage market is not so active. Under these condition, households intend to prefer ARM to FRM and ARM share has been growing largely. This trends is slightly depressed recently due to the negative interest policy, however, ARM share is still large compares to before GFC period. Taking into consideration the fact that, although interest spread has been narrow, borrowers select ARM, household behavior of mortgage choice depends not only mortgage rate but also other factors such as income variation and borrowers’ expectation on income, price and interest rates. As for household wealth, Japanese households prefer safe assets to risky assets. Housing wealth has a large part of household wealth in Japan, which is a common feature in developed countries. Taking account of that Japanese household is a risk averter, it should be noted that housing wealth becomes a risky one due to decreasing of the house price.

Smoothing consumption fluctuations through household decisions on home improvement expenditure in Japan

Purpose - – The purpose of this paper is to investigate the housing improvement expenditure as a consumption smoothing strategy for Japanese households. Design/methodology/approach - – Tobit estimation method is used to empirically investigate the role of home improvement expenditure in smoothing consumption for households in Japan using data from Japan Housing Demand Survey for 2003. Findings - – Findings suggest that: households in Japan use home improvement expenditure to adjust fluctuation in income. Income-constrained elderly households reduce their housing consumption by not improving their homes Research limitations/implications - – An implication of the analysis is that households who do not own houses may require policy intervention to maintain their welfare. Policies such as subsidies for renters in Japan need to be devised which will provide renters opportunities to smooth consumption. Further, reduction in home improvement expenditure leads to deterioration of quality of housing stock if economic downturn persists longer. This suggests that policies such as tax reduction, tax allowance or tax credit to bolster home improvement behaviour are needed during economic downturn to sustain quality of housing stock. Originality/value - – The paper contributes to the limited literature on the role of home improvement expenditure as a consumption smoothing instrument for households. Those who do not own houses are constrained in maintaining their welfare during downturn. Findings are important for policy makers and paper makes some suggestions in this regard.

Income Risk and Mortgage Choice Among Japanese Households

This paper empirically examines the relationship between income risk and mortgage instrument choice among Japanese households. Since theoretical predictions about the impact of income risks on mortgage choice are mixed, it is important to investigate empirically whether or not risky households borrow ARM loans. In order to answer this question, we construct several measures of income variability and unemployment risk that capture the income risk of the specific household. Our empirical result suggests that these income risk measures are in general negatively associated with the choice of fixed-rate mortgage contract, indicating that risky borrowers are more likely to choose adjustable-rate mortgages. Furthermore, we also find that the impact of income risk on the mortgage choice depends critically on the individual risk preferences. While there is significantly negative impact of income variability and unemployment risk on the mortgage choice for the risk averse borrowers, no systematic relationship can be found for borrowers with low risk aversion.