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Efficiency of the Tokyo Housing Market

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  • Takatoshi Ito
  • Keiko Nosse Hirono

Abstract

In analyzing the dynamics of Tokyo housing price, we have compiled annual micro data sets from individual listings in a widely-circulated real estate advertising magazine. A data set compiled from "properties for investment" lists both asking (sales) prices and rents for the same properties. With such data, a price-rent ratio is directly observable and expected capital gains before tax and commissions found to be just less than 90% in ten years. The "repeatedly-listed properties for investment" data set, a subset of the first, contains only those units in the same buildings after a one-year interval. In this data set, price, rent, and ex post capital gains are all observable. They are used to show that ex post returns on housing investment in the last four years were actually rather modest. The data sets for "housing for sale" and "housing for rent" sections were separately used for hedonic regressions, from which we constructed hedonic price and rent indexes. These regressions show the effects of various determinants of housing prices and rents. The time (year) dummy variables in the hedonic regressions give estimates of price and rent increases in the last 11 years in Tokyo. According to these estimates, prices increased 85-90% over the 1981-92 period, while rents increased about 65%. The price-(annual) rent ratio rents appears to have fluctuated between 17 and 32. Finally, the weak-form efficiency of excess returns on housing is rejected. However, the conclusion is tentative considering the short sample.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4382.

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Date of creation: Jun 1993
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Publication status: published as Bank of Japan Monetary and Economic Studies, vol. 11, no. 1, pp. 1-32 July 1993
Handle: RePEc:nbr:nberwo:4382

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References

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  1. Linneman, Peter, 1986. "An empirical test of the efficiency of the housing market," Journal of Urban Economics, Elsevier, vol. 20(2), pages 140-154, September.
  2. Karl E. Case & Robert J. Shiller, 1990. "Forecasting Prices and Excess Returns in the Housing Market," Real Estate Economics, American Real Estate and Urban Economics Association, American Real Estate and Urban Economics Association, vol. 18(3), pages 253-273.
  3. Ito Takatoshi, 1993. "The Land/Housing Problem in Japan: A Macroeconomic Approach," Journal of the Japanese and International Economies, Elsevier, vol. 7(1), pages 1-31, March.
  4. Ernst R. Berndt & Zvi Griliches, 1990. "Price Indexes for Microcomputers: An Exploratory Study," NBER Working Papers 3378, National Bureau of Economic Research, Inc.
  5. Hayashi, Fumio & Ito, Takatoshi & Slemrod, Joel, 1988. "Housing finance imperfections, taxation, and private saving: A comparative simulation analysis of the United States and Japan," Journal of the Japanese and International Economies, Elsevier, vol. 2(3), pages 215-238, September.
  6. Takatoshi Ito, 1991. "The Japanese Economy," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262090295, December.
  7. Fama, Eugene F, 1970. "Efficient Capital Markets: A Review of Theory and Empirical Work," Journal of Finance, American Finance Association, American Finance Association, vol. 25(2), pages 383-417, May.
  8. Robert Gillingham, 1975. "Place to Place Rent Comparisons," NBER Chapters, in: Annals of Economic and Social Measurement, Volume 4, number 1, pages 153-178 National Bureau of Economic Research, Inc.
  9. Thomas A. Barthold & Takatoshi Ito, 1991. "Bequest Taxes and Accumulation of Household Wealth: U.S. - Japan Comparison," NBER Working Papers 3692, National Bureau of Economic Research, Inc.
  10. Karl E. Case & Robert J. Shiller, 1988. "The Efficiency of the Market for Single-Family Homes," NBER Working Papers 2506, National Bureau of Economic Research, Inc.
  11. Hendershott, Patric H. & Cheng Hu, Sheng, 1981. "Inflation and extraordinary returns on owner-occupied housing: Some implications for capital allocation and productivity growth," Journal of Macroeconomics, Elsevier, Elsevier, vol. 3(2), pages 177-203.
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Cited by:
  1. Shiller, Robert J & Weiss, Allan N, 1999. "Home Equity Insurance," The Journal of Real Estate Finance and Economics, Springer, Springer, vol. 19(1), pages 21-47, July.
  2. Kenny, Geoff, 1998. "The Housing Market and the Macroeconomy: Evidence From Ireland," Research Technical Papers 1/RT/98, Central Bank of Ireland.
  3. Maurice J. Roche, 1999. "Irish house prices: will the roof fall in?," Economics, Finance and Accounting Department Working Paper Series, Department of Economics, Finance and Accounting, National University of Ireland - Maynooth n890699, Department of Economics, Finance and Accounting, National University of Ireland - Maynooth.
  4. Daniele Checchi, 1999. "Inequality in Incomes and Access to Education. A Cross-Country Analysis (1960-90)," Working Papers, University of Milano-Bicocca, Department of Economics 21, University of Milano-Bicocca, Department of Economics, revised May 1999.
  5. Lee, Yung-Tsung & Wang, Chou-Wen & Huang, Hong-Chih, 2012. "On the valuation of reverse mortgages with regular tenure payments," Insurance: Mathematics and Economics, Elsevier, vol. 51(2), pages 430-441.
  6. Takatoshi Ito & Tokuo Iwaisako, 1995. "Explaining Asset Bubbles in Japan," NBER Working Papers 5358, National Bureau of Economic Research, Inc.
  7. Shigenori Shiratsuka, 1999. "Measurement errors in Japanese Consumer Price Index," Working Paper Series, Federal Reserve Bank of Chicago WP-99-2, Federal Reserve Bank of Chicago.
  8. Chen, Hua & Cox, Samuel H. & Wang, Shaun S., 2010. "Is the Home Equity Conversion Mortgage in the United States sustainable? Evidence from pricing mortgage insurance premiums and non-recourse provisions using the conditional Esscher transform," Insurance: Mathematics and Economics, Elsevier, vol. 46(2), pages 371-384, April.
  9. Ren, Yu & Yuan, Yufei & Zhang, Yang, 2014. "Human capital, household capital and asset returns," Journal of Banking & Finance, Elsevier, Elsevier, vol. 42(C), pages 11-22.
  10. Shimizu, Chihiro & Nishimura, Kiyohiko G. & Watanabe, Tsutomu, 2010. "Residential rents and price rigidity: Micro structure and macro consequences," Journal of the Japanese and International Economies, Elsevier, vol. 24(2), pages 282-299, June.

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