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Efficiency of the Tokyo Housing Market

  • Takatoshi Ito

    (Professor, Hitotsubashi University and Harvard University)

  • Keiko Nosse Hirono

    (Lecturer, Josai University)

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 appears to have fluctuated between 17 and 32 around the stable ratio. 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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Article provided by Institute for Monetary and Economic Studies, Bank of Japan in its journal Monetary and Economic Studies.

Volume (Year): 11 (1993)
Issue (Month): 1 (July)
Pages: 1-32

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Handle: RePEc:ime:imemes:v:11:y:1993:i:1:p:1-32
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  1. 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, vol. 18(3), pages 253-273.
  2. 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.
  3. Fama, Eugene F, 1970. "Efficient Capital Markets: A Review of Theory and Empirical Work," Journal of Finance, American Finance Association, vol. 25(2), pages 383-417, May.
  4. 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, vol. 3(2), pages 177-203.
  5. 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.
  6. Takatoshi Ito, 1991. "The Japanese Economy," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262090295, June.
  7. 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.
  8. Takatoshi Ito, 1990. "The Land/ Housing Problem in Japan: A Macroeconomic Approach," Discussion Paper Series a228, Institute of Economic Research, Hitotsubashi University.
  9. Ernst R. Berndt & Zvi Griliches, 1990. "Price Indexes for Microcomputers: An Exploratory Study," NBER Working Papers 3378, National Bureau of Economic Research, Inc.
  10. 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.
  11. 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.
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