Housing Wealth Effects in Japan: Evidence Based on Household Micro Data

Abstract

Using micro data covering almost 500,000 Japanese households over the period 1983−2012, this paper examines to what extent household consumption responds to changes in housing wealth.Instead of employing self-reported or regionally averaged values of housing wealth, we directly estimate the housing wealth of individual households by matching several official statistics, providing an ideal setting to identify housing wealth effects on consumption. Employing cross-section and pseudo-panel based regressions, we find that the marginal propensity to consume (MPC) out of housing wealth is approximately 0.0008−0.0013 for nondurable consumption and 0.0059−0.0082 for total consumption. We further find that the consumption response of older households is larger than that of younger households, which is consistent with the pure wealth effects hypothesis.

Real estate market and consumption: macro and micro evidence of Japan

“…4 The MPC out of housing wealth in Japan is at the most 0.01 and our estimates presented here are slightly larger than previously. As for the channel through which a shock in land price is propagated to consumption, our evidence differs from Hori and Niizeki (2017) in that the collateral channel is at work throughout our sample period.…”

“…His estimates of the effects of housing wealth on consumption are significant and range from 0.0065 to 0.0079 when consumption levels are below reference points, but are insignificant and much lower when consumption levels are above reference points. Hori and Niizeki (2017) provide the most comprehensive study estimating the MPC of housing wealth from consumption function. They use cross-sectional data of the Japanese Family Income and Expenditure Survey (FIES) over the period of 1983 to 2012.…”

“…Following the methodology of Campbell and Cocco (2007), they further find that the consumption response of older households to housing wealth is larger than that of younger households, which they argue supports the pure wealth effects hypothesis. Hori and Niizeki (2017) provide the only study that compares the validity of the pure wealth effect and the collateral effect of housing wealth.…”