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2020 | OriginalPaper | Chapter

8. Imputed Rent for OOH in National Account

Authors : W. Erwin Diewert, Kiyohiko G. Nishimura, Chihiro Shimizu, Tsutomu Watanabe

Published in: Property Price Index

Publisher: Springer Japan

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Abstract

Housing price fluctuations exert effects on the economy through various channels. More precisely, however, relative prices between housing and other assets prices and goods/services prices are the variable that should be observed.

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Footnotes
1
This user cost variant follows naturally from application of the statement of the user cost approach given by Diewert (1974) in the opening quotation for Sect. 8.3 about how a consumer is imagined to be buying their home and then selling it back each period—(possibly to himself). We note that in Sect. 6 of his paper, Verbrugge (2008) relaxes the assumption that there are no costs of buying and selling a house and he uses this fact to try to help explain the divergence between the rental price of a home and its user cost.
 
2
Notice that, in computing the ROC component, we do not subtract the cost the owner would need to incur to live somewhere else if they rented the home out. The opportunity cost of living in an owned home, which is the maximum of the ROC and FOC components, is what the person would presumably compare with the costs of alternative housing arrangements in making their choice about where to live for period t. It does, however, make sense to think of the ROC value for an individual homeowner as a lower bound on the value they place on living in the home in light of the fact that most people, in the United States at least, seem to have a strong preference for living in owned accommodations.
 
3
Here normal maintenance for owned homes is essentially being defined to include the amount of maintenance and renovation expenditures required to just maintain the overall quality of the home at a constant level.
 
4
Note that in this zero equity case, it seems like the payments approach is justified at first glance. However, the payments approach neglects the expected capital gains term and during periods of high or moderate inflation, this term must be taken into account.
 
5
Locked in aspects of the financing arrangements of home buyers may also matter in this regard. We are exploring this issue now in a follow-up study.
 
6
Since the Japanese Act on Land and Building Leases strongly protects renters, increasing rent is prohibited except in cases where it is allowed due to a rise in costs such as property taxes. As a result, even when housing prices rise significantly, it is difficult to change the rent during the lease contract term. As well, even when a lease contract is renewed, increases in the rent amount are not allowed to exceed the extent of cost increases.
 
8
In Japan, the publication of the RPPI Handbook has led to an office being set up within the Ministry of Land, Infrastructure, Transport and Tourism, and advisory board aimed at real estate price index upgrading being implemented through interaction between the Bank of Japan and Financial Services Agency (which are responsible for fiscal policy), the Cabinet Office (which is responsible for SNA statistics), the Ministry of Internal Affairs and Communications Statistics Bureau (which is responsible for consumer price statistics), the Ministry of Justice (which is responsible for housing relocation statistics), and private-sector experts, and progress being made toward establishing a new housing price index. A new housing price index using the method recommended in the RPPI Handbook is scheduled to be published during fiscal 2012. The coordination of such statistics across Japan as a whole is significant not just as a benchmark for making fiscal and monetary decisions but also for creating the possibility of applying them to other statistics—the estimation of imputed rent for owner-occupied housing being a leading example.
 
9
Land evaluation for property tax purposes is determined using 70% of the published land price as a base. For this study, we started by calculating the land price evaluation level using the published land price base.
 
10
Shimizu et al. (2010b) report that the Recruit data cover more than 95% of the entire transactions in the 23 special wards of Tokyo. On the other hand, its coverage for suburban areas is very limited. We use only information for the units located in the special wards of Tokyo.
 
11
There are two reasons for the listing of a unit being removed from the magazine: a successful deal or a withdrawal (i.e. the seller gives up looking for a buyer and thus withdraws the listing). We were allowed access information regarding which the two reasons applied for individual cases and discarded those where the seller withdrew the listing.
 
12
Recruit Co., Ltd. provided us with information on contract prices for about 24% of the entire listings. Using this information, we were able to confirm that prices in the final week were almost always identical with the contract prices (i.e., they differed at a probability of less than 0.1%).
 
13
Travel time to the CBD is measured as follows. The metropolitan area of Tokyo is composed of 23 wards centering on the Tokyo Station area and containing a dense railway network. Within this area, we choose seven railway/subway stations as the central stations, which include Tokyo, Shinagawa, Shibuya, Shinjuku, Ikebukuro, Ueno, and Otemachi. Then, we define travel time to the CBD by the minutes needed to commute to the nearest of the seven stations in the daytime.
 
14
The time to the nearest station, TS, is defined as walking time to a nearest station if a house is located within the walking distance from a station, and the sum of walking time to a bus stop and onboard time from the bus stop to a nearest station if a house is located in a bus transportation area within walking distance from a station. We use a bus dummy, Bus, to indicate whether a house is located in a walking distance area from a station or in a bus transportation area.
 
15
With regard to the distance to the nearest station, the closest station was defined as the closest station from the center of the building. Based on that, the road distance was measured using the GIS. As well, with regard to the time from the nearest station to Tokyo Station, the average day-time travel time was added, in the same way as for the rental/housing price data.
 
16
The Housing and Land Survey includes the number of stocks by year of construction. Accordingly, we calculated the average age of buildings by municipality based on the year of construction, and calculated the Age of Building (A) based on the time elapsed until the time of calculation.
 
17
We can see a differences between (a) and (e), (c) and (f). The differences come from the survey method. the Tokyo current land and building usage survey is Census, on the other hand, the Housing and Land Survey is Sample survey.
 
18
Here, we forecast housing prices and rents using hedonic function estimate values for all periods, based on building stocks in the baseline year of 1990, and then calculated the average value. In other words, it is a weighted average based on 1990 baseline stocks.
 
19
In national accounting as well, under the same definition, “owner-occupied housing” is calculated as part of the breakdown of “entrepreneurial income (after receivable and payable of distributed income of corporations),” with the amount being ¥22.6 trillion in 2009. Even though the definition was the same, there is a discrepancy of ¥4 trillion.
 
20
Since damage insurance costs are extremely low, we decided not to consider them in this study.
 
21
In recent years, mortgages from private financial institutions have come to be used, but prior to 2000, it was normal to use mortgages from the former Government Housing Loan Corporation. As well, even now, the interest rate set by the Japan Housing Finance Agency is the benchmark for mortgage interest. Given this, we believed that its rates were representative. The average loan interest from the Government Housing Loan Corporation was 0.0527 in 1990, which fluctuated over time to 0.0363 in 1995, 0.0278 in 2000, 0.0308 in 2005, and 0.0343 in 2010.
 
22
The yield on 10-year government bonds from 1990 to 2010 peaked at 0.052 in 1990, dropping to 0.0346 in 1995, 0.0183 in 2000, 0.0140 in 2005, and 0.0117 in 2010. However, throughout the period in question, it may be considered one of the assets that offered the highest return on investment.
 
23
If there is no breakdown of the property taxes into structures and land components, then just impute the overall tax into structures and land components based on the beginning of the period values of both components.
 
24
In property tax land evaluation, various adjustments are performed, such as relief measures for small-scale residential land. As a result, tax amounts are not necessarily determined based on the land evaluation amount. Accordingly, we obtained the tax base amount for Tokyo as a whole (the total price determined as the land price for actual taxation purposes) as a proportion of the land asset amount calculated with SNA statistics. The land asset amount calculated with SNA uses published land prices for land price data and uses data adjusted for property taxes for floor space. As a result, both proportions are similar in that they are proportions of the published land price and property tax land evaluation amount.
 
25
In Recruit’s survey, housing floor space and the actual maintenance/administration costs corresponding to it were surveyed. In the 2005 survey, data was collected for 48,532 condominiums and 23,200 single family houses in Tokyo. Maintenance/administration costs for the 2005 year were ¥3,130/m\(^{2}\) (annually) for condominiums and ¥920/m\(^{2}\) (annually) for single family houses. Multiplying these amounts by the average floor space of 60 m\(^{2}\) for condominiums and 100 m\(^{2}\) for single family houses, the annual cost was ¥187,000 for condominiums and ¥92,000 for single family houses.
 
26
The city of Tokyo was divided into a total of 53 areas: 23 special wards and 30 municipalities. It has become evident that moving to a new location outside of one’s administrative district happens very rarely. As well, it is known that housing price changes vary considerably by region. As a result, we deemed it appropriate to calculate anticipated growth rate by administrative district.
 
Literature
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Metadata
Title
Imputed Rent for OOH in National Account
Authors
W. Erwin Diewert
Kiyohiko G. Nishimura
Chihiro Shimizu
Tsutomu Watanabe
Copyright Year
2020
Publisher
Springer Japan
DOI
https://doi.org/10.1007/978-4-431-55942-9_8