January 2015
Japan Financial Report
Report 2

Plunge in New Housing Starts Means Existing Homes MarketExpansion Is Key:– Housing Start Estimates Informed by Population Trends–Kazumasa IwataPresident, Japan Center for Economic Research

Ikuko Fueda-Samikawa
Principal Economist, Japan Center for Economic Research
Financial Research Team:
Kohei Kikuchi, Sumitomo Mitsui Banking Corporation

1. Estimated Housing Starts by Prefecture
Suzuki and Matsuoka (2013)1 have developed a classification for housing stock as shown inFigure 1. The stock of all dwellings is grouped into either (1) homes inhabited by households or (2)vacant homes. The latter is further divided into (3) dwellings intended for rent, sale, or held as asecond home and (4) other dwellings. Dwellings in category (3) are referred to “good vacant homes,”
and those in (4) are called “bad vacant homes.”
Figure 1. A classification for housing stock
all households（＋）
数

economicconditions（＋）

homes inhabited by households
housing starts（＋）

the stock of all dwellings

the stock ofgood dwellings

dwellings intended for rent, saleor held as a second home（good vacant homes）
other dwellings（bad vacant homes）

loss of buildings（－）
old single-personhouseholds（－）

Source: Suzuki and Matsuoka(2013)
1Jun Suzuki and Hideaki Matsuoka, “Ghost Town-ka suru chiiki, akiya no katsuyo ga kadai ni: 2028-nen
todofuken-betsu jutaku chakko kosu no yosoku” (Making Fuller Use of Vacant Homes to Prevent Communities
from Becoming Ghost Towns: Forecasts for New Privately Owned Housing Units in 2028 by Prefecture) inJapanese, in the 39th Medium-Term Economic Forecast, 2012FY–2025FY, Japan Center for Economic Research,March 2013.

http://www.jcer.or.jp/Japan Center for Economic Research

January 2015

Japan Financial Report

In this paper we attempt to determine whether decline in the number of working-age
population and its share among the total population impact negatively on housing starts. This wasdone by conducting a panel estimation in which we added working-age population trends toestimation by Suzuki and Matsuoka (2013).
The periods covered were 1993–2013 and 1998–2013, the latter excluding data for years
shortly before and after the Great Hanshin Earthquake of 1995. The variables used were averages foreach five-year period (see Table 1).
Table 1. Variables used in the estimation

dependent

explanatoryvariables
① ＲＩ
② ＧＳ
③ ＷＰ
④ ＧＤＰ
⑤ ＡＲ
⑥ ＧＶ
⑦ ＷＲnotes
housing starts（each prefecture's）
the stock of good dwelling(each prefecture's)
working-age population（each prefecture's）
nominal GDP growth（nationwide）
share of vacant homes(each prefecture's）
good vacant homes／the stock of good dwelling（each prefecture's）
share of working-age population(each prefecture's)

expected sign＋＋－－＋

Data Source: Ministry of Land, Infrastructure, Transport and Tourism, Ministry of Internal Affairs andCommunications, Cabinet Office, government of Japan

We expect increase in prefectural working-age population—those expected to make the bulkof home purchases—to result in higher housing starts in each prefecture. We also consider higher
nominal gross domestic product (GDP), a measure of business conditions in Japan as a whole, as
likely to increase the number of housing starts.
Table 2 shows the panel estimate results. Rise in each prefecture’s home vacancy ratio andhigher shares of “good” vacant homes in the prefecture’s housing stock, on the contrary, dampened
housing starts. This is because higher vacancies indicate a glut in the housing supply. Most
importantly, a drop in the share of the working population led to a decrease in housing starts. Thepanel estimate results for other predictor variables were likewise in line with expectations.
Table 2. Panel estimate results
dependent variable
estimation period
equation numberｄｌｏｇ(ＷＰ)
GDPＡＲ
ＧＶ
ＷＲ
Ｒ-squared

１***-0.0003
***
0.102
***
-0.076

0.884

RI／GS（housing starts／the stock of good dwelling）
1993-2013
1998-2013
２３４５６
***
***
***
-0.00030.1040.118
***
***
***
***
***
0.110.065
0.073
0.079
0.058
***
***
-0.042-0.051*********-0.073-0.052-0.058
***
***
0.103
0.100
0.874
0.909
0.892
0.893
0.897

７0.062******-0.059
***
0.115
0.894

Note: * denotes significance at 10% level, ** denotes significance at 5% level, *** denotes significance at 1% level.

2. Using Estimation Formulas to Forecast Housing Starts
An estimate of housing starts in FY2019–23 was then made based on the above results(equation No.7). The ratio of working-age population was based on population projection (byprefecture) issued by the National Institute of Population and Social Security Research and nominal
GDP growth was based on JCER’s Medium-Term Economic Forecasts. Increase in the stock of

http://www.jcer.or.jp/－ 2 －Japan Center for Economic Research

January 2015

Japan Financial Report“good” vacant homes was defined as the number of housing starts minus the growth in “bad” vacant
homes. The formula for the estimation model can thus be expressed as follows (where BV refers to“bad” vacancies).

∆∆A forecast for housing starts and the stock of good vacancies can be calculated using
formula (1), a variant of the above estimation model, and formula (2).
1/

2

The results show that housing starts in FY2019–23 are expected to decline by over 20% in
almost all prefectures, with the national average being a drop of around 30% (see Figures 2 and 3).
Prefectures where the working population is expected to fall sharply will see a corresponding
reduction in housing starts.
Figure 2. Forecast of housing starts in FY2019-2023
100（2009～2013FY average＝100）（％）

0.0housing starts

80

working-age population growth(RHS)-0.5-1.040-1.5

20-2.00-2.5

Yamaguchi
Wakayama
Kagoshima
Akita
Nagano
Kochi
ShimaneKagawaEhime
Miyazaki
Oita
Kumamoto
Nagasaki
Hokkaido
Iwate
Tokushima
Yamanashi
Shizuoka
Ibaraki
Fukushima
Yamagata
Niigata
FukuokaToyamaFukui
Miyagi
SagaGunmaTochigi
Hiroshima
AomoriIshikawa
Okayama
Gifu
Nara
Osaka
Hyogo
Kyoto
Chiba
Tottori
Saitama
Okinawa
MieAichiShiga
Kanagawa
Tokyo60

Figure 3. Forecast of nationwide housing starts in FY2014-2023
140（10,000 units）
forecast

120
100（10,000 persons, 10,000 units）
nationwide housing starts
working-age population(RHS)
the stock of good dwelling(RHS)

10000
9000
8000

80

7000

60

6000

40

5000

20

4000

0

3000
2003

2005

2007

20092011

2013

2015

2017

2019

2021

2023
（FY）

http://www.jcer.or.jp/－ 3 －Japan Center for Economic Research

January 2015

Japan Financial Report

3. Measures to Boost the Mortgage Market
Given the anticipated shrinking of the new housing market, measures are needed to create
new demand for home loans by boosting transactions of existing homes. The government eyes thehousing market as part of its growth strategy and has outlined a policy of doubling the market forexisting homes and home renovations by FY2020. A number of measures have already beenimplemented.
For example, in December 2013 the Ministry of Land, Infrastructure, Transport, and Tourism(MLIT) announced subsidies of between ¥1 million and ¥2 million for renovations meeting certain
standards, such as protection against earthquakes or improvement of energy efficiency. The use ofgovernment funds to encourage home renovations is a positive step that should lead to such benefits
as higher quality dwellings and a more active used-home market. The Japan Housing FinanceAgency, meanwhile, is expected to expand its Flat 35 fixed-rate housing loan program in April 2015.
The expansion will enable purchasers of existing homes to borrow funds not just to buy the home
but also to renovate it at the same time—instead of having to apply for a separate loan from a privatebank to finance the renovation.
A dwindling mortgage market could be a big blow for some financial institutions, since manyof them have sought to make up for the prolonged low interest rates—and small margins—byincreasing the number of loans. In order to maintain the demand for housing loans in the face of ashrinking population, we will need further measures to expand the existing home andhome-renovation markets.

Reference Works:
Atsushi Watanabe (2014) “Flat35 kakujuu, Kinyukikan ga keikai” (Some Financial institutions are
cautious about Flat 35expanding) Nikkei Veritas October 19, 2014

Copyright © 2015 JCER______________________________________________________________________________________

Japan Center for Economic Research (JCER)
Nikkei Bldg. 11F 1-3-7 Otemachi, Chiyoda-ku, Tokyo 100-8066, Japan
Phone:81-3-6256-7730 / FAX:81-3-6256-7926

http://www.jcer.or.jp/－ 4 －