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Structure Depreciation and the Production of Real Estate Services

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  • Yoshida, Jiro

Abstract

This study simultaneously analyzes the real estate production function and economic depreciation of structures by using data from Japan and the U.S. The estimated share of structure value is used to infer returns to scale, the land-structure substitution, and the structure depreciation rate. Real estate exhibits approximately constant returns in Japan, but decreasing returns in the U.S. Land and structures are substitutes in both countries. The land value ratio is 10% in Centre County, PA, but 60%-70% in Japan, reflecting the scarcity of land. The property depreciation rate is larger for newer and denser properties located further away from the downtown area in a smaller city. The property depreciation rate is smaller than the structure depreciation rate due to the effect of land and a survivorship bias. The bias-corrected structure depreciation rates significantly vary by property type and country: approximately 7% for residential properties and 10% for commercial properties in Japan in contrast with 1% for residential structures in the U.S. The median life-span of structures is 30-35 years for residential and 20-30 years for commercial properties in Japan.

Suggested Citation

  • Yoshida, Jiro, 2016. "Structure Depreciation and the Production of Real Estate Services," HIT-REFINED Working Paper Series 44, Institute of Economic Research, Hitotsubashi University.
  • Handle: RePEc:hit:remfce:44
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    File URL: http://hermes-ir.lib.hit-u.ac.jp/rs/bitstream/10086/27780/1/wp044.pdf
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    Cited by:

    1. Pierre-Philippe Combes & Gilles Duranton & Laurent Gobillon, 2016. "The Production Function for Housing: Evidence from France," PSE Working Papers halshs-01400852, HAL.
    2. Iwaisako, Tokuo & Ono, Arito & Saito, Amane & Tokuda, Hidenobu, 2018. "Disentangling the Effect of Home Ownership on Household Stock-holdings: Evidence from Japanese micro data," HIT-REFINED Working Paper Series 77, Institute of Economic Research, Hitotsubashi University.
    3. Kawaguchi, Daiji & Yukutake, Norifumi, 2017. "Estimating the residential land damage of the Fukushima nuclear accident," Journal of Urban Economics, Elsevier, vol. 99(C), pages 148-160.
    4. Yamagishi, Atsushi, 2019. "Minimum Wages and Housing Rents: Theory and Evidence from Two Countries," MPRA Paper 94238, University Library of Munich, Germany.

    More about this item

    Keywords

    capital consumption; returns to scale; elasticity of substitution; housing; commercial real estate; hedonic analysis; survivorship bias; demolition; Japan; USA;

    JEL classification:

    • R32 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Other Spatial Production and Pricing Analysis
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production

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