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Unlocking Housing Equity in Japan

  • Olivia S. Mitchell
  • John Piggott

Prior literature on asset patterns among the elderly often overlooks housing wealth as a determinant of retiree wealth, particularly in the Japanese context. Yet releasing equity in housing may be a natural mechanism to boost consumption, reduce public pension liability, and mitigate the demand for long-term care facilities in Japan. Our study evaluates what might be needed to implement reverse mortgages (RMs) in this country. Policies could include exempting RMs from capital gains tax and transactions tax, along with mechanisms to make annuity income flows nontaxable, along with interest rate accruals for RMs. In addition, housing market reforms to enhance information flows would be needed, particularly regarding new and existing housing trades, which could permit the securitization of housing loans and lines of credit. Other improvements in capital markets could also help, including the establishment of reinsurance mechanisms to help lenders offer these reverse mortgages while having some protection against crossover risk. In the Japanese case, demand for RMs will be dampened by declining residential housing values as well as low interest rates and long life expectancies. Nevertheless, we conclude that RMs might be a good way to finance elderly consumption in Japan, particularly against the backdrop of governmental financial stringencies.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 10340.

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Date of creation: Mar 2004
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Publication status: published as Mitchell, Olivia S. and John Piggott. "Unlocking Housing Equity In Japan," Journal of the Japanese and International Economies, 2004, v18(4,Dec), 466-505.
Handle: RePEc:nbr:nberwo:10340
Note: AG
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  1. Robert J. Shiller & Allan N. Weiss, 1994. "Home Equity Insurance," NBER Working Papers 4830, National Bureau of Economic Research, Inc.
  2. Miki Seko, 1994. "Housing Finance in Japan," NBER Chapters, in: Housing Markets in the United States and Japan, pages 49-64 National Bureau of Economic Research, Inc.
  3. Olivia S. Mitchell & James M. Poterba & Mark J. Warshawsky, 1997. "New Evidence on the Money's Worth of Individual Annuities," NBER Working Papers 6002, National Bureau of Economic Research, Inc.
  4. Robert J. Shiller & Allan N. Weiss, 2000. "Moral Hazard in Home Equity Conversion," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 28(1), pages 1-31.
  5. Steven F. Venti & David A. Wise, 2000. "Aging and Housing Equity," NBER Working Papers 7882, National Bureau of Economic Research, Inc.
  6. Axel Börsch-Supan & Florian Heiss & Miki Seko, 2002. "Housing Demand in Germany and Japan," MEA discussion paper series 02008, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy.
  7. Miki Seko, 1994. "Housing in a Wealth-Based Economy," Japanese Economy, M.E. Sharpe, Inc., vol. 22(2), pages 65-92, March.
  8. David McCarthy & Olivia S. Mitchell, 2003. "International Adverse Selection in Life Insurance and Annuities," NBER Working Papers 9975, National Bureau of Economic Research, Inc.
  9. Sally R. Merrill & Meryl Finkel & Nandinee K. Kutty, 1994. "Potential Beneficiaries from Reverse Mortgage Products for Elderly Homeowners: An Analysis of American Housing Survey Data," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 22(2), pages 257-299.
  10. Kiyohiko G. Nishimura & Chihiro Shimizu, 2003. "Distortion in Land Price Information---Mechanism in Sales Comparables and Appraisal Value Relation---," CIRJE F-Series CIRJE-F-195, CIRJE, Faculty of Economics, University of Tokyo.
  11. repec:cup:cbooks:9780521484718 is not listed on IDEAS
  12. Todd Sinai & Nicholas S. Souleles, 2005. "Owner-Occupied Housing as a Hedge Against Rent Risk," The Quarterly Journal of Economics, MIT Press, vol. 120(2), pages 763-789, May.
  13. Maria Concetta Chiuri & Tullio Jappelli, 2000. "Financial Market Imperfections and Home Ownership: A Comparative Study," CSEF Working Papers 44, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy, revised 01 Dec 2000.
  14. Poterba, James M., 2002. "Taxation, risk-taking, and household portfolio behavior," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 3, chapter 17, pages 1109-1171 Elsevier.
  15. Noriyuki Takayama & Yukinobu Kitamura, 1994. "Household Saving Behavior in Japan," NBER Chapters, in: International Comparisons of Household Saving, pages 125-168 National Bureau of Economic Research, Inc.
  16. Marjorie Flavin & Takashi Yamashita, 2002. "Owner-Occupied Housing and the Composition of the Household Portfolio," American Economic Review, American Economic Association, vol. 92(1), pages 345-362, March.
  17. Charles Yuji Horioka, 2002. "Are the Japanese Selfish, Altruistic or Dynastic?," The Japanese Economic Review, Japanese Economic Association, vol. 53(1), pages 26-54.
  18. Olivia S. Mitchell & David McCarthy, 2002. "Annuities for an Ageing World," NBER Working Papers 9092, National Bureau of Economic Research, Inc.
  19. Christopher J. Mayer & Katerina V. Simons, 1994. "Reverse Mortgages and the Liquidity of Housing Wealth," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 22(2), pages 235-255.
  20. Luci Ellis & Dan Andrews, 2001. "City Sizes, Housing Costs, and Wealth," RBA Research Discussion Papers rdp2001-08, Reserve Bank of Australia.
  21. Steven F. Venti & David A. Wise, 2004. "Aging and Housing Equity: Another Look," NBER Chapters, in: Perspectives on the Economics of Aging, pages 127-180 National Bureau of Economic Research, Inc.
  22. repec:cup:cbooks:9780521481625 is not listed on IDEAS
  23. Peter Chinloy & Isaac F. Megbolugbe, 1994. "Reverse Mortgages: Contracting and Crossover Risk," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 22(2), pages 367-386.
  24. Robert L. Clark & Olivia S. Mitchell, 2002. "Strengthening Employment-Based Pensions in Japan," NBER Working Papers 8891, National Bureau of Economic Research, Inc.
  25. Edward J. Szymanoski, 1994. "Risk and the Home Equity Conversion Mortgage," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 22(2), pages 347-366.
  26. Toshiaki Tachibanaki, 1994. "Housing and Saving in Japan," NBER Chapters, in: Housing Markets in the United States and Japan, pages 161-190 National Bureau of Economic Research, Inc.
  27. Thomas P. Boehm & Michael C. Ehrhardt, 1994. "Reverse Mortgages and Interest Rate Risk," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 22(2), pages 387-408.
  28. Kiyohiko G. Nishimura & Fukujyu Yamazaki & Takako Idee & Toshiaki Watanabe, 1999. "Distortionary Taxation, Excessive Price Sensitivity, and Japanese Land Prices," NBER Working Papers 7254, National Bureau of Economic Research, Inc.
  29. William Goetzmann & Matthew Spiegel, 2000. "The Policy Implications of Portfolio Choice in Underserved Mortgage Markets," Yale School of Management Working Papers ysm161, Yale School of Management, revised 01 Mar 2001.
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