Housing Tenure Choice After the Revision of the Rental Act

Abstract

A new mode of housing tenure in Japan, rental housing with a fixed rental term, was introduced in March 2000 with the revision of the Japanese Tenant Protection Law. This chapter examines the implications of this new system by analyzing the determinants of the choices by households among the three types of housing tenure in Japan: owned housing, ordinary rental housing, and rental housing with a fixed rental term; and calculating the estimated compensated variation. Our micro-data are based on the three waves of Japanese household longitudinal data (Keio Household Panel Survey, KHPS) covering all Japan. The difference between ordinary rental housing and rental housing with a fixed rental term is reflected in the length of the contract term and the level of rent. We carefully eliminate potential sample selection bias introduced to the conditional logit housing tenure choice model through the estimation of the hedonic price regression of each housing tenure alternative. We find that households with a smaller number of family members, those who moved from outside the local housing market, those headed by an unmarried household head, and those with plans to own a house in the near future tend to select rental housing with a fixed rental term. The estimated mean compensating variation by introducing rental housing with a fixed rental term for all households selecting that tenure is 1205 yen per month, 1.96% of their monthly rent. Moreover, the young and/or low-income households receive the greatest benefit from the revision of the law in terms of lower rents.