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Über dieses Buch

This book addresses essential questions about housing by building theoretical models based on various real world problems in Japan and testing these models using econometric methods. Almost all related empirical analyses use Japanese household longitudinal data. Accordingly, the author analyzes whole aspects of the data, based on an understanding of the actual situation, theory, and empirical analysis, to directly derive a vision of a future housing policy.

Why are houses expensive and difficult to obtain in Japan? Why do people have to live in small houses? Why do people not relocate frequently? Why is the earthquake insurance subscription rate so low, particularly in an earthquake-prone country such as Japan, even after such a catastrophic event as the Great East Japan Earthquake of 2011? How do existing housing finance and tax policies or laws relate to these real world problems? To answer these questions, the book clarifies the unique criteria that characterize housing problems in Japan and presents a vision of future housing policy.

The short answer is that existing housing finance policy that adopts criteria based on the floor space of houses creates incentives for people to live in even smaller houses. Furthermore, the Japan Rental Act, which affects people renting homes, reduces residential mobility. The incidence of underinsurance against earthquake risk is a result of earthquake insurance market imperfections such as crude and rough geographical risk ratings.

The book elaborates on these factors in four parts and will be of interest to all readers who are concerned with the housing market and household behavior in Japan.

Inhaltsverzeichnis

Frontmatter

Chapter 1. Introduction: Purpose and Organization of This Book

Abstract
This chapter describes the purpose, organization and preview of each chapter of this book. The purpose of this book is to address essential questions about housing by building theoretical models based on various real world problems in Japan and testing these models using econometric methods. Almost all related empirical analyses use Japanese household longitudinal data. This book clarifies the unique criteria that characterize housing problems in Japan and presents a vision of future housing policy. This book elaborates on these factors in five parts.
Miki Seko

Housing Markets and the Macro Economy

Frontmatter

Chapter 2. House-Price Dynamics and Effects on the Macro Economy

Abstract
The first part of this chapter draws on 12 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 comparing the effects between 2004 to 2008 and 2009 to 2014. 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 and whether there is any difference between the two periods. Taking account of the specific nature of the recourse-loan system in Japan, we further investigate whether these effects differ 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 even in recent financial-easing periods. In the latter part of this chapter, we use Japanese prefectural-level data to analyze the relationship between borrowing patterns and house price dynamics under the recourse-loan system. Our principal finding is that, in prefectures where homeowners are highly leveraged (i.e., have high and extended loan-to-value ratios), house prices respond less sensitively than they do in prefectures where lower leveraged homeowners are common. This finding based on the recourse-loan system is quite different from the finding under the non-recourse-loan system, because under the recourse-loan system, the lock-in effect stemming from severe equity constraints is much more severe.
Miki Seko

Chapter 3. Housing Market Imperfections and Distortions Resulting from Criteria Based on House Floor Space

Abstract
This is the first study to apply to Japanese housing data the econometric analysis of piecewise-linear budget constraints arising from space-linked subsidized interest rates. The floor-space demand model employed is the classical Hausman-type with random preferences and optimization errors. We estimate that if the Government Housing Loan Corporation (GHLC) loan system operated like a private lending institution, it would eliminate the current excess burden per household of approximately 9% of the average GHLC credit subsidy of a home. That is, existing housing finance that adopts criteria based on the floor space of houses creates incentives for people to live in even smaller houses.
Miki Seko

Chapter 4. Housing and Housing Finance Markets

Abstract
This chapter reviews the housing and housing finance markets in Japan and suggests directions for future policy reforms. The chapter argues that the potential benefits of market-oriented reforms for Japan’s housing finance system, private and public rental housing, and second-hand housing market are evident.
Miki Seko

Housing Tenure and Changes in Economic Welfare

Frontmatter

Chapter 5. Effects of Systems and Regulations on Residential Mobility

Abstract
This study draws on three waves of Japan household longitudinal data (Keio Household Panel Survey, KHPS) and estimates a proportional hazard model to investigate the effects of two distinctive polices in Japan that influence residential moves. One is the implementation of an income tax deduction system in 2004 for the carrying over of capital losses for owner-occupied households and the other is the Japan Rental Act for renter households. The former tax policy was devised to cope with the severe equity constraints that followed the bursting of Japan’s asset Bubble in the early 1990s. The latter Rental Act (1921, amended in 1941) provides renters protection from eviction and is the basis for a court-arbitrated rent control system. The effect of this rent control system on residential mobility based on an estimate of the implicit subsidy resulting from the Rental Act is examined. It is found that both government policies have a strong impact on residential mobility. The implementation of an income tax deduction system linked to capital losses increases owners’ mobility, especially for those households with a large LTV (loan-to-value ratio).
Miki Seko

Chapter 6. Housing Tenure Choice After the Revision of the Rental Act

Abstract
A new mode of housing tenure in Japan, rental housing with a fixed rental term, was introduced in March 2000 with the revision of the Japanese Tenant Protection Law. This chapter examines the implications of this new system by analyzing the determinants of the choices by households among the three types of housing tenure in Japan: owned housing, ordinary rental housing, and rental housing with a fixed rental term; and calculating the estimated compensated variation. Our micro-data are based on the three waves of Japanese household longitudinal data (Keio Household Panel Survey, KHPS) covering all Japan. The difference between ordinary rental housing and rental housing with a fixed rental term is reflected in the length of the contract term and the level of rent. We carefully eliminate potential sample selection bias introduced to the conditional logit housing tenure choice model through the estimation of the hedonic price regression of each housing tenure alternative. We find that households with a smaller number of family members, those who moved from outside the local housing market, those headed by an unmarried household head, and those with plans to own a house in the near future tend to select rental housing with a fixed rental term. The estimated mean compensating variation by introducing rental housing with a fixed rental term for all households selecting that tenure is 1205 yen per month, 1.96% of their monthly rent. Moreover, the young and/or low-income households receive the greatest benefit from the revision of the law in terms of lower rents.
Miki Seko

Chapter 7. The Term Premium of Cancellable Lease Rates

Abstract
The rent term premium for leases that can be cancelled by the lessee is analyzed. A model for 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 that lease markets involve significant transaction costs is developed. It is shown 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 a term structure consistent with our calibrated model. This result provides a new insight into the lessor’s optimal choice of rents and the equilibrium rent term premium.
Miki Seko

Earthquake Risk and the Residential Market

Frontmatter

Chapter 8. Earthquake Risk and a Quality of Life Index

Abstract
Japan is famous for its earthquakes. How do households and firms respond to this potentially devastating risk? How does earthquake risk affect housing costs and wages? To answer these questions, we construct a Quality of Life Index (QOLI) and estimate the pecuniary cost of earthquake risk among cities/counties in Japan. The regional QOLI is obtained through estimating the hedonic wage and housing regressions using household longitudinal data covering all Japan. From the estimated results, we find that earthquake risk has a significant impact on the overall quality of life in Japanese prefectures, and that there are large city/county differences in terms of the pecuniary cost of earthquake risk. Finally, we argue that the large regional variation in the pecuniary cost of earthquakes arises from earthquake insurance market imperfections—crude and rough geographical risk rating—and propose a possible remedy for enhancing earthquake insurance risk assessment.
Miki Seko

Chapter 9. Valuation of Earthquake Risk in Housing Markets

Abstract
The relationships between seismic risk and rental and owner-occupied housing prices in all Japan are examined. Empirical results from hedonic regressions with earthquake risk indices suggest that (1) the earthquake occurrence probability has significantly negative effect on the monthly housing rent, (2) the effect of earthquake probability in the owner-occupied housing market is not so clear as in the rental market, (3) the estimated risk premium is larger for steel-framed concrete apartments, and (4) the share of quake-resistant dwellings in the neighborhood area is significantly and positively related to the housing price of the individual unit. These results suggest that anti-seismic policies targeting specific groups of dwellings—such as rental houses—help to mitigate the welfare loss due to the earthquake loss.
Miki Seko

Chapter 10. Consumer Valuation of Earthquake Risk Before and After Massive Earthquakes

Abstract
We use the hedonic pricing approach to examine whether homeowners and/or renters alter their subjective assessments of earthquake risk after massive earthquakes. It is found that there are some modifications of individuals’ assessments of earthquake risk in both cases, using nationwide household panel data coupled with earthquake hazard information and records of observed earthquakes. Households tend to underestimate earthquake risk if there has not been a recent occurrence.
Miki Seko

Chapter 11. Earthquake Insurance Subscription Rates and Regional Cross-Subsidies

Abstract
A theoretical framework and empirical evidence are presented to show the connection between community uniform rating and cross-subsidies in earthquake insurance policy in Japan. Cross-subsidies are defined as the difference between a fair actuarial premium and the community uniform rate. The estimation result shows that the uniform community rating may unintentionally cross-subsidize inhabitants in high-risk areas at the expense of inhabitants in low-risk areas. Our simulation results indicate that replacing the current community rating with the fair actuarial premium would increase the overall subscription rate for earthquake insurance by about 3.7 percentage points, and that the increase is particularly prominent in relatively less risky areas. We propose modifying the Japanese earthquake insurance system by adopting a more refined risk-rating system that more closely reflects regional differences in earthquake risk.
Miki Seko

Households’ Behavioral Responses after the Great East Japan Earthquake

Frontmatter

Chapter 12. Perceived Preparedness and Attitude of Japanese Households Toward Risk Mitigation Activities Following the Great East Japan Earthquake: Earthquake Insurance Purchase and Seismic Retrofitting

Abstract
The Great East Japan Earthquake and the subsequent tsunami on March 11, 2011, were a wake-up call for Japan’s enormous earthquake risk and the need for appropriate measures to mitigate disasters. We use unique survey data collected after the earthquake to examine how consumers reacted to this catastrophic event. We find that self-reported, perceived preparedness for natural disasters has significantly improved even among low-income households after March 11, but that post-quake intentions for more specific risk mitigation activities were systematically associated with household income and wealth levels. High-income households are more likely to plan the purchase of earthquake insurance or to conduct seismic retrofitting following the March 11 earthquake, indicating that the recent events might have widened the gap in disaster preparedness between rich and poor. Obviously, earthquake insurance is one of the most effective measures for mitigating earthquake losses. Nonetheless, despite increased disaster awareness and preparedness following the March 11, 2011 earthquake, the proportion of Japanese households covered by earthquake insurance is still low. We aim to reveal the reasons deterring people from purchasing earthquake insurance. Moreover, our dataset has enabled us to analyze the post-quake attitudes by households that have not taken out earthquake insurance. Our empirical results suggest that typical homeowners would like to purchase insurance in response to the recent earthquake. However, we have also found these post-quake responses to be heterogeneous. That is, households with substantial home equity are more likely to be dissatisfied with the current earthquake insurance system and are therefore reluctant to purchase new insurance. The current Japanese earthquake insurance system restricts the amount of insurance benefits and imposes expensive insurance premiums on consumers who require high compensation. These limitations apparently prevent homeowners from purchasing earthquake insurance.
Miki Seko

Chapter 13. Households’ Risk Mitigation Activities and Risk Perception Bias: Earthquake Insurance Purchase and Seismic Retrofitting

Abstract
This chapter examines how objective disaster risk perception, which is based on disaster prevention information such as hazard maps , has affected household disaster prevention and mitigation activities in the aftermath of the Great East Japan Earthquake. The results of an analysis focusing on the purchase of earthquake insurance and implementation of household seismic retrofitting show that accessing disaster prevention materials does, on average, encourage household disaster prevention and mitigation activities. Furthermore, an examination of its relationship with objective earthquake occurrence risk—Japan Meteorological Agency (JMA) 6− or higher earthquake occurrence probability—revealed that accessing disaster prevention information had a significant effect on households in both relatively low- and high-risk regions. This result is consistent with the hypothesis that consumer perception bias for earthquake risk is reduced by the dissemination of objective risk indicators based on disaster prevention information. As a result, the rise in the number of households who have accessed disaster prevention information since the earthquake could be linked to disaster prevention and mitigation activities by households, particularly in regions with low and high probability of earthquake occurrence.
Miki Seko

Policy Implications of This Book

Frontmatter

Chapter 14. Conclusion: Policy Implications and Future Research

Abstract
First, this chapter describes policy implications derived from an economic analysis of the Japanese housing market from four points of view: (1) changes in real estate prices and the impacts on the macro economy; (2) the relationship between housing type and economic welfare; (3) an economic analysis of earthquake risk and the real estate market; and (4) the change in household behavior after the 2011 Tohoku earthquake and tsunami. Next, this chapter describes future research topics from three points of view: (i) Designing a Housing Finance System, (ii) Liquidity and Provision in the Rental Housing Market, (iii) Earthquake Risk and Disaster Prevention Polies.
Miki Seko

Backmatter

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