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The Journal of Real Estate Finance and Economics

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01-06-2012

Residential Mobility Decisions in Japan: Effects of Housing Equity Constraints and Income Shocks under the Recourse Loan System

Authors: Miki Seko, Kazuto Sumita, Michio Naoi

Published in: The Journal of Real Estate Finance and Economics | Issue 1/2012

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Abstract

This paper draws on six waves of Japanese household longitudinal data (Keio Household Panel Survey, KHPS) and estimates a conditional fixed effects logit model to investigate the effects of housing equity constraints and income shocks on own-to-own residential moves in Japan. By looking at contemporaneous extended Loan-to-Value (ELTV) and extended Debt-to-Income (EDTI) ratios under the recourse loan system, we examine whether housing equity constraints and negative income shocks have any impact on own-to-own residential moves. Taking account of the specific nature of the recourse loan system in Japan, we further investigate whether these effects are different between positive and negative equity households. The estimation results show that housing equity constraints and negative income shocks significantly deter own-to-own residential moves for positive equity households.

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Long (1991) analyzed residential mobility differences among developed countries. Strassmann (1991) made an international comparison of housing market interventions and mobility. Angel (2000), Table A.25 (p.372) shows annual residential mobility rates as of 1990 among 53 major cities in 53 countries. Harsman and Quigley (1991), Table 1, 2, 3, 4 and Appendix shows annual residential mobility rates among European countries and the U.S.

U.S. data is from the Social Science Data Analysis Network (http://www.censusscope.org/us/s48/chart_migration.html, accessed on November 17, 2009). Canadian data is from Statistics Canada released 2006 census mobility data (http://www12.statcan.gc.ca/census-recensement/2006/dp-pd/index-eng.cfm, accessed on November 17, 2009).

This figure is based on the 2008 Housing and Land Survey of Japan. The annual residential mobility rate was 8.1% between 1968 and 1973, 7.5% between 1973 and 1978, 6.8% between 1978 and 1982, 6.2% between 1982 and 1988, 6.1% between 1988 and 1993, 5.8% between 1993 and 1998, 5.1% between 1998 and 2003, and 4.4% between 2003 and 2008.

Seko and Sumita (forthcoming) surveyed trends and prospects in Japan’s Mortgage Market.

Leung (2004) surveyed research focusing on the relationship between housing price cyclicality, volatility and the structure of the residential lending market.

Genesove and Mayer (1997; 2001) find that nominal loss aversion also affects seller behavior (i.e. higher asking prices) in the housing market, and as a result causes a longer time on the market.

Börsch-Supan (1987, 1990) employed this model to analyze the choice of housing tenure and size using five waves of PSID. Andrew (2004) used this model to explain why home ownership rates among young adults fell in the early 1990s even as various indicators suggested it had become more affordable.

An empirical counterpart of this variable is discussed in further detail in Section 6.2.

It should be noted that, compared with our model based on the recourse loan system, non-recourse loan contracts can yield somewhat different results. Under the non-recourse contract, the down payment constraint for a defaulting household would be γPH ≤ W instead of Eq. (2). Because non-housing asset W can be positive even for negative equity households, under the non-recourse loan contract they can rationally default and move to a new house (with a certain cost for defaulting).

Our ELTV is similar to Chan’s (2001, p.578) extended LTV. However, our ELTV is devised explicitly taking into consideration the characteristics of the recourse loan system. Moreover, Chan did not conduct empirical analysis using the extended LTV. We have also devised another variant of LTV, i.e. adding saving and securities into the denominator (Seko et al. 2009). Both variants of LTV exhibit qualitatively similar results.

For those households that did not provide the self-reported value, we impute (using hedonic regression) the missing self-reported value. In doing so, we first estimate the hedonic regression with fixed effects by using the existing (non-missing) self-reported value and housing attributes information available from the questionnaire. The estimation result is reported in Appendix. Using the regression result, we then compute the truncated predictor to impute the missing house value. This is the predictor that uses the coefficient estimates of the hedonic model without the fixed effects in order to make up for the missing observations (Baillie and Baltagi 1999). For households that provided the self-reported house value data, we compute the fixed effects predictor.

Equal monthly payments including interest are the most widespread repayment method in Japan.

For the mortgage interest rate, we use the base interest rate (kijun kinri) of the Japan Housing Finance Agency. (http://www.jhf.go.jp/customer/yushi/kinri/suji_kikouyushi.html, accessed on November 9, 2009)

Since the standard error of the difference is 1.4123 and z statistic that follows standard normal distribution under the null hypothesis of no difference is 0.49 and the P-value is 0.622, the null hypothesis cannot be rejected.

There is no standard rule, but in Japan down payments range from 10% to 20% of the purchase price.

Note that, at the same time, a greater burden of repayment gives an incentive to move to a smaller home. Therefore EDTI may have a positive effect on residential mobility. Our estimate here is net of these two effects.

See Cameron and Trivedi (2005, p.273) for detail.

Observations with regional LTV = 0 or LTV >2 are excluded from Figure 5. Households with zero regional LTV ranges from 26.3% to 29.4% during our sample period.

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Title: Residential Mobility Decisions in Japan: Effects of Housing Equity Constraints and Income Shocks under the Recourse Loan System
Authors: Miki Seko
Kazuto Sumita
Michio Naoi
Publication date: 01-06-2012
Publisher: Springer US
Published in: The Journal of Real Estate Finance and Economics / Issue 1/2012
Print ISSN: 0895-5638
Electronic ISSN: 1573-045X
DOI: https://doi.org/10.1007/s11146-011-9322-3

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Special Issue Introduction

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