Housing Investment and Residential Land Supply in Japan: An Asset Market Approach

Abstract

This article investigates Japan's housing market using an equilibrium market approach based on both theoretical and empirical perspectives. An equilibrium model of the housing market is developed by combining the consumption capital asset pricing model with the supply functions of housing and residential land as determined by the housing industry. To verify the model's results, the Japanese housing market is subsequently estimated via Hansen's (1982) generalized method of moments, after which simulations are performed that enable examination of the main factors affecting housing investment. Findings suggest that fluctuations in housing investment during the 1970s occurred as a result of a decline in productivity caused by the 1973 oil crisis, with its downward trend in the first half of the 1980s being due to the decrease in the growth rate of Japan's adult population.J. Japan Int. Econ.,March 1997,11(1), pp. 27–54. Department of Economics, Northwestern University, 2003 Sheridan Road, Evanston, Illinois 60208.