ISSN (Print) 0473-453X

Discussion Paper No. 1075

ISSN (Online) 2435-0982

WAS THE EXPANSIONOF HOUSING CREDIT
IN JAPAN GOOD OR BAD?

Charles Yuji Horioka
Yoko Niimi

January 2020

The Institute of Social and Economic Research
Osaka University
6-1 Mihogaoka, Ibaraki, Osaka 567-0047, Japan

Was the Expansion of Housing Credit in Japan Good or Bad?
Charles Yuji Horioka*
Research Institute for Economics and Business Administration, Kobe University; Asian
Growth Research Institute; Osaka University; and National Bureau of Economic
Research
Yoko Niimi
Doshisha University and Asian Growth Research Institute
January 2020

Abstract
This paper shows, using data from the Family Income and Expenditure Survey, that
housing credit has become increasingly available over time in Japan, especially since
2000, and that this has made it easier for Japanese households to purchase housing andenabled them to do so at an earlier age. However, it also shows that the greater availabilityof housing credit has increased households’ housing loan repayment burden, which has
resulted in their cutting back on their other consumption expenditures and created thepotential for retirement insecurity. Another concern is that the increasing availability of
housing credit has been accompanied by a pronounced shift from fixed-rate to variablerate housing loans. This is cause for concern given the low level of financial literacy thatprevails among the Japanese population and the likelihood that interest rates on variablerate housing loans will be raised sooner or later as monetary policy is tightened.
Keywords: Homeownership; Housing credit; Housing loans; Mortgages; Household
debt; Household liabilities
JEL classification codes: D14, E21, R21*Corresponding author: Charles Yuji Horioka, Research Institute for Economics and Business
Administration, Kobe University, 2-1, Rokkodai-cho, Nada-ku, Kobe, Hyogo 657-8501, JAPAN.
Email address: horioka@rieb.kobe-u.ac.jp

1. Introduction
Financial sector development (in particular, the expansion of housing credit) is generally
regarded as being a good thing because it relaxes the borrowing constraints facing
households, makes it easier for them to purchase housing and enabling them to purchasehousing at a younger age. However, the overexpansion of housing credit can cause serious
problems for individual households as well as for the economy as a whole.
The best example of this is the subprime mortgage crisis that occurred in the United States(US) in 2007-10. Starting in the late 1990s, financial institutions in the US greatly
expanded their supply of subprime mortgages (housing loans to borrowers with low credit
ratings that typically charged a fixed interest rate for an initial period and a variableinterest rate thereafter). The overuse of subprime mortgages caused a surge in defaultsand foreclosures, which triggered the financial crisis of 2007–08 and thesubsequent Great Recession (2007–09) (see, for example, Dynan and Kohn (2007),
Gerardi et al. (2008), Sanders (2008), and Whalen (2008)).１ In addition, Lusardi et al.
(2018a, 2018b, forthcoming) have documented how the overexpansion of housing credit
and other forms of consumer credit has created a situation in which many Americans areapproaching retirement with significant amounts of debt, threatening their retirement
security.
There has been a similar expansion of housing credit in Japan, particularly since 2000. It
is of interest to know whether or not it caused, or can be expected to cause, a crisis akinto the subprime mortgage crisis in the US. The purpose of this paper is to shed light on
the extent of the expansion of housing credit in Japan and on the possible impacts of thisexpansion on the financial well-being of households using data from the Family Income
and Expenditure Survey, a household survey conducted by the Japanese government. The
ultimate objective of the paper is to assess whether the expansion of housing credit was agood thing or a bad thing. To the best of our knowledge, this is the first detailed analysisof this issue for the case of Japan although Horioka and Niimi (forthcoming) conducteda preliminary analysis using only stock data on liabilities.
１

A comprehensive analysis of the causes of the subprime mortgage crisis in the US is beyond thescope of this paper, but the consensus is that it was caused not only by the sharp increase in the supplyof housing debt to risky borrowers but also by the increase in housing speculation including increased
purchases of secondary homes for investment purposes, the collapse of the housing bubble, andinadequate government regulation of financial products such as mortgage-backed securities andcollateralized debt obligations that distributed and perhaps concealed the risk of mortgage default(refer to the papers cited above for more details).
1

The remainder of this paper is organized as follows. Section 2 presents a history of
housing credit in Japan; section 3 discusses the data used for the analysis; section 4
documents the rapid growth in the availability of housing credit in Japan after 2000;
sections 5 and 6 present evidence on the benefits and costs of the increasing availabilityof housing credit, respectively; and section 7 summarizes, concludes, and explores thepolicy implications of our findings.
2. The History of Housing Credit in JapanThe Second World War caused the destruction of a substantial fraction of Japan’s housing
stock, and as a result, housing conditions were poor and the homeownership rate was low
at the end of the war. One of the policies that the Japanese government adopted to remedy
this situation was to establish in 1950 the Government Housing Loan Corporation (GHLC,
in Japanese, Juutaku Kin’yuu Kouko), a government agency similar to the Federal
Housing Authority in the US, whose purpose was to provide long-term fixed- and lowinterest rate loans to households wishing to purchase or construct housing. In the early
postwar years, the GHLC was the primary source of housing loans, but private financial
institutions began offering housing loans in the 1970s and 1980s. Moreover, in 1994, theMinistry of Finance liberalized the housing loan market and allowed private financial
institutions to freely set the terms and interest rates of housing loans. This led to an
expansion in the amount of housing credit provided by private financial institutions, andit came to be felt that there was no longer a need for the government to supply housing
credit.
It was therefore decided in 2001 that the GHLC would be abolished as part of the reformof special public corporations, and in 2003, a law governing the restructuring of the
GHLC was passed that provided for the abolition of the GHLC in 2007 and its
replacement by the newly created Japan Housing Finance Agency (JHF, in Japanese,
Juutaku Kin’yuu Shien Kikou). At the same time, it was decided that the GHLC would
scale back its provision of housing loans and shift its focus to securitizing andguaranteeing private-sector housing loans. The GHLC started its securitization operationsin 2003, and these operations were taken over by the JHF following the abolition of the
GHLC in 2007.
This meant that, whereas the primary role of the GHLC had been to provide housing loans2directly to households, the JHF’s primary role is to help private financial institutions toprovide housing loans by securitizing and guaranteeing a type of long-term fixed-rate
housing loan offered by private financial institutions called Flat 35 (a fixed-rate housing
loan with a maturity of 35 years). More specifically, the JHF purchases such housing
loans from private financial institutions, issues mortgage-backed securities, andguarantees that investors in these securities will receive payment of the principal andinterest on schedule. The government decided to assume the role of securitizing andguaranteeing private housing loans because, although the securitization of housing loans
started in 1999, the securitization market for private label securities was too small toreplace GHLC lending.
The end result of these reforms is that the housing finance system was greatly liberalized,with the role of the private sector expanding relative to that of the government sector andwith the choices available to households broadening to include not only fixed-rate loans
but also variable-rate loans and elective-period fixed rate loans, a hybrid product whose
interest rate is fixed for a pre-determined number of years before becoming variable.
Figure 1, for example, shows the shares of various types of housing loans in the case of
new lending during the 2001-16 period. One of the most noticeable trends in this figure
is a significant increase in the share of variable-rate loans since the mid-2000s. Its share
was only about 23% in 2001 but increased to about 50% in 2016.
Moreover, other factors also contributed to the expansion of housing credit such as thedecline in corporate borrowing and the need for lenders to find alternate borrowers fortheir funds.２
To summarize, recent reforms of the housing credit system have not only increased the
supply of housing credit available to households but have also increased the choices
available to them. In conjunction with the low interest rates that have prevailed in recent
years, these reforms have made it easier for households to purchase a home (seeKobayashi (2016) and Yamori and Kondo (2008) for more details).

２

Note that, in addition to factors increasing the supply of housing credit, there were also factors
increasing the demand for housing credit. For example, Yukutake et al. (2015) suggest that inter vivos
transfers from parents to children may have become more exchange-related (i.e., tied to care of elderly
parents) over time, which in turn may have made children more hesitant to rely on parents for financial
assistance and induced them to rely more on housing loans when purchasing housing.
33. Data
The data we use in this paper are taken from the Family Income and Expenditure Survey(FIES). This survey, the Japanese equivalent of the US Consumer Expenditure Survey, isa household survey conducted on an ongoing basis by the Statistics Bureau, Ministry ofInternal Affairs and Communications. It collects extensive information on householdincome, consumption, saving, wealth, and liabilities. About 8,000 households are
randomly selected from throughout Japan using a three-stage stratified sampling method,
and thus the sample of the FIES is representative of the entire population of Japan.
Until 2001, stock data on wealth and liabilities were collected separately in a companion
survey called the Family Savings Survey (FSS), and thus, until 2001, stock data on wealthand liabilities are taken from this source. The FSS was fully incorporated into the FIES
in 2002, and the data for 2001 and earlier and those for 2002 and later are fully comparable.
These surveys collect data on all households, but in this analysis, we present data only onsalaried worker households (households in which the household head is a salaried worker)
because data on income and saving are not available for other households (primarily selfemployed, unemployed, and retired households). Moreover, we confine our sample totwo-or-more-person households due to data limitations.
4. The Expansion of Housing Credit in JapanThe liberalization of the housing loan market that has taken place since the 1990s is likely
to have resulted in the increasing availability of housing credit over time, as noted earlier.
To confirm this trend, we look at stock data on the ratio of housing-related debt tohousehold disposable income. Note that, in this section as well as throughout theremainder of this paper, we present data on the full sample of two-or-more-person salaried
worker households of all ages as well as on such households with a head aged 30-39, 4049, and 50-59 for selected years during the 1970-2017 period.３

３

We do not show data on households with a head aged 29 or younger because the number ofobservations is too small to be reliable. We do not show data on households with a head aged 60 orolder either because the compulsory retirement age for salaried workers in Japan has traditionally been
60, meaning that the vast majority of those aged 60 or older are already retired and, as a result, thenumber of observations with a head aged 60 or older in our sample (i.e., the sample of salaried worker
households) is too small to be reliable.
4

Table 1 shows stock data on the ratio of housing-related debt to household disposable
income for the 1970-2017 period.４ As can be seen from this table, this ratio was a mere
11 to 14% in 1970, but it increased sharply for all age groups during the 1970-2017 period.
The increase was especially pronounced for the 30-39 age group, increasing by 4.85
percentage points per year, on average, for this age group as opposed to 2.77 percentage
points for the full sample, 3.45 percentage points for the 40-49 age group, and 1.74
percentage points for the 50-59 age group.
Looking in more detail at trends over time, the rate of increase in the housing debt-toincome ratio was roughly constant throughout the 1970-2017 period for the full sample,
averaging 2.68 percentage points per year during the 1970-2000 period and 2.91
percentage points during the 2000-17 period. However, we find that the rate of increasein the housing debt-to-income ratio varied greatly over time if we look at trends by age
group. For example, in the case of the 30-39 age group, the housing debt-to-income ratio
increased by 3.07 percentage points per year, on average, during the 1970-2000 period
but by 7.98 percentage points during the 2000-17 period. By contrast, it increased by 3.96
(2.05) percentage points per year during the 1970-2000 period but by 2.55 (1.19)
percentage points during the 2000-17 period for the 40-49 (50-59) age group. Thus, theincrease in the housing debt-to-income ratio accelerated after 2000 in the 30-39 age groupbut decelerated after 2000 in the 40-49 and 50-59 age groups. This suggests not only thatthe availability of housing credit increased rapidly over time but that it became available
to younger and younger households over time.
5. The Benefits of the Increasing Availability of Housing Credit in Japan
In the previous section, we provided evidence that housing credit has become increasingly
available especially after 2000 and especially for the 30-39 age group. In this section, we
attempt to shed light on what impact the increasing availability of housing credit has hadon household behavior. One possibility is that the increasing availability of housing credit
has allowed households to purchase housing with a smaller down payment, making iteasier for households to purchase housing and enabling them to do so at an earlier age
than previously. We present three types of evidence in support of this working hypothesis.
Table 2 shows flow data on the ratio of new housing loans to housing purchases(commonly referred to as the loan-to-value ratio), which indicates the proportion of４

See Horioka (2012) for earlier data on this ratio.
5

housing purchases financed by housing loans, or to put it another way, one minus thedown payment ratio. As can be seen from this table, the loan-to-value ratio was only about
11 to about 43% for all age groups in 1970 but increased sharply thereafter (except for a
few outliers for the 40-49 and 50-59 age groups, which are presumably due to the small
number of households purchasing a new house). For example, it increased from about 37
to about 72% for the full sample and from about 43 to 85% for the 30-39 age group. Thesefigures imply that the down payment ratio decreased sharply from about 63 to about 28%
for the full sample and from about 57 to about 15% for the 30-39 age group.
Looking in more detail at trends over time, the rate of increase in the loan-to-value ratio(the decrease in the down payment ratio) accelerated after 2000 for both the full sample
and the 30-39 age group. The rate of increase averaged 0.51 (0.07) percentage points per
year during the 1970-2000 period but accelerated to 1.19 (2.35) percentage points during
the 2000-17 period for the full sample (the 30-39 age group). These figures provide
further corroboration that housing credit became much more available during this period,
especially after 2000 and especially for the 30-39 age group, and suggest that the amountof down payment required for purchasing housing has been declining over time.
We look next at stock data on the homeownership rate (Table 3) and flow data on the ratioof housing purchases to household disposable income (Table 4). Table 3 presents data on
the homeownership rate for the 1975-2017 period (data were not available for 1970).
According to this table, the homeownership rate increased sharply during this period for
all age groups (with the exception of the 1975-95 period in the case of the 30-39 age
group), from about 56 to about 79% for the full sample, from about 48 to about 62% for
the 30-39 age group, from about 65 to about 79% for the 40-49 age group, and from about
76 to about 87% for the 50-59 age group. These figures suggest that the government’s
efforts to improve the housing conditions of the Japanese population have been effective,at least to some extent.
Looking in more detail at trends over time, the rate of increase in the homeownership rate
was roughly constant throughout the 1975-2017 period for the full sample, averaging 0.48
percentage points per year during the 1975-2000 period and 0.62 percentage points during
the 2000-17 period. However, trends over time varied greatly by age group. The
homeownership rate of the 30-39 age group decreased by 0.15 percentage points per year,
on average, during the 1970-2000 period, but it increased by 1.06 percentage points
during the 2000-17 period. By contrast, the homeownership rate of the 40-49 (50-59) age
6group increased by 0.44 (0.37) percentage points per year during the 1970-2000 period,
but the rate of increase decelerated to 0.21 (0.14) percentage points during the 2000-17
period.
As a result, the rate of increase in the homeownership rate was much higher for the 4049 and 50-59 age groups than for the 30-39 age group during the 1970-2000 period,
whereas the opposite was the case during the 2000-17 period. Note also the fact that the
homeownership rate increased more rapidly for the 30-39 age group than for the 40-49
and 50-59 age groups during the 2000-17 period dramatically decreased the gap in the
homeownership rate between these age groups. The homeownership rate of the 30-39 age
group was 31.4 (40.4) percentage points lower than that of the 40-49 (50-59) age groupin 2000, but this gap had narrowed by almost half to 16.9 (24.8) percentage points by2017.
Turning next to data on housing purchases as a ratio of household disposable income,Table 4 shows data on this ratio for the 1970-2017 period. The housing purchases-toincome ratio was in the 1.6 to 2.9% range for all age groups in 1970 and showed little
variation by age, but subsequent trends in this ratio vary greatly by age group. It declined
during the 1970-2017 period by 0.01 percentage points per year, on average, for the fullsample, by 0.02 percentage points for the 40-49 age group, and by 0.06 percentage points
for the 50-59 age group, but it increased by 0.11 percentage points for the 30-39 age group.
Moreover, the rate of increase of this ratio for the 30-39 age group accelerated sharply
over time from 0.04 percentage points per year during the 1970-2000 period to 0.22
percentage points during the 2000-17 period.
As a result, in 2017, the housing purchases-to-income ratio was by far the highest for the
30-39 age group (7.5%), much higher than for the 40-49 age group (0.5%) and the 50-59
age group (0.3%). This trend, together with the trend in homeownership rates shown in
Table 3, suggests that housing purchases have become increasingly concentrated in the
30-39 age group over time.
Further corroboration of the trend toward purchasing housing at a younger age is provided
by Table 5. The table shows data on the life-cycle pattern of the housing debt-to-income
ratio by birth cohort and is based on the information contained in Table 1. According tothis table, the housing debt-to-income ratio increases with age for birth cohorts born in
1936-45 or earlier but peaks in the 40-49 age group for birth cohorts born in 1946-55 or7later. This change occurred because younger birth cohorts were able to purchase housing
at a younger age than older birth cohorts, meaning that they could repay their housing
loans and reduce their outstanding housing debt sooner.
All of these findings corroborate the working hypothesis we proposed at the beginning of
this section that the increasing availability of housing credit has made it easier forhouseholds to purchase housing and has enabled them to do so at an earlier age (in their30s) than previously.
Needless to say, however, the increase in housing purchases in the 30-39 age group after
2000 was not due entirely to the increasing availability of housing credit. There wereother contributing factors, and we briefly discuss each of these factors in turn.
(1) Tax breaks for housing purchase. The Japanese government has offered various tax
breaks for housing purchase since 1978, partly to promote homeownership and partly
to stimulate the economy as a whole. These tax breaks have typically taken the formof tax deductions that are calculated as a certain percentage (currently 1%) of theoutstanding value of housing loans and that are available for a certain number of years(formerly 10 years but extended to 13 years on October 1, 2019, to coincide with theconsumption tax increase) if certain conditions are met. Given that these tax breaks
for housing purchase have been repeatedly expanded, they are likely to have promoted
housing purchases as well as the use of housing loans to finance these purchases.
(2) Monetary policy. The Bank of Japan has maintained an expansionary monetary
policy since at least September 1995, and in particular, it has pursued a so-called ‘zero
interest rate policy’ since February 1999 (except during the August 2000 to March
2001 period). This led to a sharp decline in all interest rates, and interest rates on
housing loans were no exception. Moreover, the Bank of Japan has pursued
quantitative easing policies since 2001 and quantitative and qualitative easing policies
since 2013, and this has increased the supply of credit, including housing credit. The
decline in interest rates and the increased supply of credit are likely to have promoted
housing purchases as well as the use of housing loans to finance these purchases.
(3) The reduction in company housing and rent subsidies. In the past, large Japanesecompanies provided low-cost company housing and/or rent subsidies to theiremployees, and the government did likewise for its workers, but both have been8

scaling back such fringe benefits in recent years. For example, a survey by Keidanren(Japan Business Federation) found that the housing-related subsidies of large
companies peaked in 1996 and have been steadily declining since 2000.５(4) The decline in the construction of public housing. One pillar of the Japanese
government’s housing policy during the postwar period (together with subsidized
housing loans) was the provision of public housing, largely to the low- and middleincome and the elderly. However, the construction of public housing has largely been
curtailed since the 1990s, and this may have contributed to the increase in housingpurchases in recent years (see, for example, Xu and Zhou (2019)).
(5) The decline in land prices. Real land prices in Japan rose sharply in the late 1980s,
but they have been declining steadily since 1992, and the decline in land prices
undoubtedly contributed to the increase in housing purchases by making housing
more affordable (see Horioka and Niimi (2020) for data on trends in land prices overtime).６(6) The trend toward nuclear families. The social norm in Japan has traditionally been
for children (especially the eldest son) to continue living with their parents even after
they marry and have children and to care for elderly parents. However, there has beena steady increase in the share of nuclear families in recent decades (see, for example,
Niimi (2016)), and this trend may have increased the need for the younger generation
to secure its own housing, thereby contributing to the increase in housing purchases.
In sum, all of these factors have undoubtedly played some role in encouraging households
to purchase housing and to finance their purchases using housing loans and inencouraging them to do so at an earlier age since 2000. A rigorous analysis is needed todetermine the contribution of each of these factors to the recent increase in housingpurchases among young households.

Refer to Keizai Dantai Rengoukai (Keidanren) (Japan Business Federation), Dai-62-kai Fukuri
Kousei-hi Chousa Kekka Houkoku (62nd Report on the Results of the Employee Benefits Survey) (Fiscal
Year 2017), December 19, 2018 (available at https://www.keidanren.or.jp/policy/2018/115.html).
６Note, however, that Nemoto (2017) finds that land prices are significantly affected by credit
availability, which suggests that land prices are endogenous and that the increased availability of
housing credit during the late 1980s was one cause of the surge in land prices during this period.
５9

6. The Costs of the Increasing Availability of Housing Credit in Japan
We have so far shown that the increasing availability of housing credit has been beneficial
to households, making it easier for them to purchase housing and enabling them to do soat an earlier age than previously. However, we now wish to consider whether theincreasing availability of housing credit has imposed any offsetting costs on households.
One possibility is that increased purchases of housing at younger ages has increased thedebt burden of households and reduced their standard of living.
In order to test this hypothesis, Table 6 shows data on the ratio of housing loan repayments
to household disposable income (hereafter called the housing loan repayment burden)
during the 1970-2017 period. This ratio was only 0.8 to 1.4% in 1970, but it has shown
an upward trend since then for all age groups, increasing from 1.2% to 8.3% for the fullsample, from 1.4 to 9.5% for the 30-39 age group, from 1.3 to 10.0% for the 40-49 age
group, and from 0.8 to 8.0% for the 50-59 age group.
Looking in more detail at trends over time, during the 1970-2000 period, the rate ofincrease of the housing loan repayment burden was highest for the 40-49 age group (0.29
percentage points per year, on average, as opposed to 0.21 percentage points for the fullsample and 0.20 (0.18) percentage points for the 30-39 (50-59) age group), but during the
2000-17 period, it was highest for the 30-39 age group (0.12 percentage points per year
as opposed to 0.06 percentage points for the full sample and -0.01 (0.10) percentage points
for the 40-49 (50-59) age group). The fact that the housing loan repayment burden
increased most rapidly for the 40-49 age group during the 1970-2000 period but increased
most rapidly for the 30-39 age group during the 2000-17 period reflects the decline in the
average age of housing purchase over time.
Our finding that the housing loan repayment burden increased for all age groups during
the 1970-2017 period, presumably as a result of increased housing purchases, suggeststhat households may have had to reduce their propensity to consume by the same extent.
However, it must be borne in mind that homeowner households do not need to pay rent
and that this benefit of homeownership at least partially offsets the burden of housing
loan repayments and other expenses associated with homeownership. Hence, households’
standard of living will not necessarily deteriorate as a result of increased housingpurchases and the resulting increase in their housing loan repayment burden.

10

In order to test this assertion, we need to examine data on the ratio of rent to disposable
income, which are shown in Table 7 for the 1970-2017 period. The rent-to-income ratio
was relatively low for all age groups in 1970 (about 1.2 to 3.5%) but was somewhat higher
for the 30-39 age group than for the 40-49 and 50-59 age groups. This can, at least partly,
be explained by the fact that the homeownership rate was much lower for the 30-39 group,
as shown in Table 3. The rent-to-income ratio subsequently showed an upward trend from1975 until 2005-10 for all age groups (even though the homeownership ratio increased
for all age groups except for the 30-39 age group (see Table 3)), presumably because rent
levels increased during this period. However, the rent-to-income ratio tapered off after
2005-2010 for all age groups. This change in trend is particularly pronounced for the 3039 age group, for which the rate of change in the rent-to-income ratio was negative (-0.08
percentage points per year, on average) during the 2000-17 period. As shown earlier, thehomeownership rate of the 30-39 age group increased sharply during this period,
suggesting that the decreased rent burden was caused by the increase in homeownership.
These findings suggest that households’ standard of living may not necessarily havedeteriorated due to the increased burden of housing loan repayments inasmuch as
households no longer need to pay rent after purchasing housing.
In order to ascertain the extent to which the decline in rent payments has offset theincrease in the housing loan repayment burden, we look next at data on the ratio of total
housing-related expenditures (the sum of housing loan repayments and rent) to household
disposable income for the 1970-2017 period (see Table 8). The housing-relatedexpenditure-to-income ratio was relatively low for all age groups in 1970 (between 2.0%
and 4.8%), but this ratio then showed a sharp upward trend in all age groups, increasing
to the 9.8-14.5% range in 2017. This suggests that the increased burden of housing loan
repayments has not been fully offset by the reduced rent burden.
This, in turn, raises the question of whether the sharp increase in the total burden of
housing-related expenditures required households, especially households in the 30-39 age
group, to reduce their non-housing consumption. We therefore look at data on the nonhousing consumption propensity (calculated as the ratio of household consumption
excluding rent to household disposable income) for the 1970-2017 period (see Table 9).
As can be seen from this table, this ratio was relatively high and almost identical (about77%) in all age groups in 1970, but it declined for all age groups thereafter. Moreover, it
declined much more sharply for the 30-39 age group than for older age groups, and as aresult, it was much lower for the 30-39 age group than for older age groups by 201711

(59.0% vs. 64.1% for the 40-49 age group and 73.0% for the 50-59 age group). Thus, theincreasing burden of housing-related expenditures required all households but especiallyhouseholds in the 30-39 age group to reduce their non-housing consumption. In the caseof the 30-39 age group, the increase in the housing-related-expenditure-to-income ratio
was 9.7 percentage points during the 1970-2017 period (see Table 8), while the decreasein the non-housing consumption propensity during the same period was 18.1 percentage
points (see Table 9). Thus, the increase in the burden of housing-related expenditures can
explain more than half of the decrease in non-housing consumption.
Another cause for concern is that Japanese households will not be able to accumulate
enough assets for retirement due to the excessive burden of housing loan repayments. To
investigate this possibility, we look at data on the ratio of financial assets net of nonhousing liabilities to household disposable income. We focus on financial assets rather
than total assets because Japanese households typically continue living in their own
homes after retirement, meaning that only financial assets can be used to finance theirliving expenses during retirement. Table 10 shows data on the so-called net financial asset
ratio for the 1970-2017 period. This ratio increased throughout this period for the fullsample and for the 50-59 age group but peaked in 1990-2005 (2000-05) for the 30-39 (4049) age group. Since the increase in the housing loan repayment burden after 2000 was
highest for the 30-39 age group, it is quite possible that the tapering off of the net financial
asset ratio after 2000 for this age group was due, at least in part, to the increase in its
housing loan repayment burden (see Table 6).
To corroborate this hypothesis further, we show in Table 11 data on the life-cycle patternof the net financial asset ratio by birth cohort, which is based on the information containedin Table 10. We find that the net financial asset ratio increases with age for all birth cohorts
but that the rate of the increase has declined over time in recent years. For example, theincrease in the net financial asset ratio from the 30-39 age group to the 40-49 age group
was about 64 percentage points for the 1946-55 birth cohort but only about 36 percentage
points for the 1966-75 birth cohort. Since the former figure pertains to the 1985-95 period
while the latter figure pertains to the 2005-2015 period, the flattening in the age profileof the net financial asset ratio from cohort to cohort is presumably due, at least in part, tothe increasing housing loan repayment burden after 2000.
There is therefore a possibility that, as a result of their increasing housing loan repayment
burden, birth cohorts born after 1960 (who are now 60 or younger) may not have enough12

resources to finance their living expenses during retirement. However, it must be bornein mind that homeowners have an important advantage vis-à-vis renters (namely, that they
do not need to pay rent), as a result of which they do not need as much wealth to financetheir living expenses during retirement.
Yet another cause for concern is that the increasing availability of housing credit over thelast few decades has been accompanied by a significant shift from fixed-rate to variablerate housing loans (see Figure 1). As long as interest rates are kept low, this should not be
a serious concern, but the Bank of Japan is likely to normalize its monetary policy sooner
or later, and when it does so, interest rates on variable-rate housing loans will increase.
Moreover, given that interest rates have been kept low for so long in Japan and given the
low levels of financial literacy of Japanese households, many Japanese households may
not be fully aware of the risks associated with variable-rate housing loans.
Figure 2, for example, shows that about 12% of those who have taken out variable-rate
housing loans do not seem to understand the implications of interest rate increases forloan repayment amounts. In addition, about 37% of them are worried about whether or
not they understand this risk sufficiently. This suggests that Japan may see a group ofhouseholds who encounter difficulties in repaying their housing loans if and when interest
rates are increased. It is indeed worrying to find that about one-fifth of those who havetaken out variable-rate housing loans do not seem to have thought about possible ways of
responding to the increase in the loan repayment amount that will occur if and wheninterest rates increase and that about 10% of such households plan to refinance wheninterest rates increase, which is the opposite of what they should do (see Figure 3).
7. Summary, Conclusions, and Policy Implications
There has been a rapid expansion of housing credit in Japan especially since 2000, and it
is of interest to know whether or not it caused, or can be expected to cause, a crisis akinto the subprime mortgage crisis in the US. This paper tried to shed light on the extent of
the expansion of housing credit in Japan and on the possible impacts of this expansion on
the financial well-being of households using data from the Family Income andExpenditure Survey. The ultimate objective of the paper was to assess whether the
expansion of housing credit was a good thing or a bad thing.
To summarize our main findings, we showed that housing credit has become increasingly13available over time in Japan, especially since 2000, and that this has made it easier forJapanese households to purchase housing and has enabled them to do so at an earlier age,which in turn has freed them from the burden of having to pay rent. On the other hand,
this has increased households’ housing loan repayment burden and required them to cut
back on their other consumption expenditures and created the potential for retirement
insecurity. Furthermore, we showed that the increasing availability of housing credit has
been accompanied by a significant shift from fixed-rate to variable-rate housing loans.
This is cause for concern given the low level of financial literacy that prevails among theJapanese population and the likelihood that interest rates on variable-rate housing loans
will be raised sooner or later as monetary policy is tightened.
The rapid expansion of housing credit in Japan therefore has not produced a crisis as it
did in the US, at least not yet, but there is still cause for concern. At the very least, thegovernment should monitor the debt levels and housing loan repayment burdens ofhouseholds and provide them with adequate financial literacy so that they fully appreciate
the risks inherent in variable-rate housing mortgages. Moreover, the government should
monitor the situation with particular vigilance if and when the Bank of Japan normalizes
its monetary policy because households have become more vulnerable to rising interest
rates as the share of households who have chosen variable-rate housing loans has
increased sharply in recent years.
Turning finally to the question we posed in the title of our paper “Was the expansion of
housing credit in Japan good or bad?” we showed that it conferred considerable
advantages on Japanese households such as making it easier for them to purchase housing
and enabling them to do so at an earlier age, which in turn has freed them from the burdenof having to pay rent, and these are significant advantages given Japanese households’
strong preference for homeownership. The rapid expansion of housing credit has, at thesame time, conferred disadvantages on Japanese households such as increasing theirhousing loan repayment burden, requiring them to cut back on their other consumption
expenditures, and creating the potential for retirement insecurity, but none of thesedisadvantages appears to be very serious, at least at the present time. Thus, we believethat the advantages conferred by the rapid expansion of housing credit greatly offset thedisadvantages thereof and that the answer to our question is an unqualified “yes.” At thesame time, however, we wish to reiterate our view that the impact of housing credit onhouseholds needs to be monitored closely to prevent the occurrence of a housing loan
crisis similar to the one observed in the US.
14

Acknowledgements
We are grateful to Joshua Aizenman, Anoshua Chaudhuri, Shin’ichi Fukuda, Soyoung
Kim, Young Sik Kim, Jong-Wha Lee, Olivia Mitchell, John Sabelbaus, Koji Sakuma,
Etsuro Shioji, Nobuyuki Yamori, other participants of the Asia-Pacific Economic
Association Meeting at Fukuoka University and the Workshop on Trade, Development,
and Inequality at Wuhan University, and especially an anonymous referee for their helpfulcomments and discussions and to the JSPS (Japan Society for the Promotion of Science)
KAKENHI Grant Numbers 18H00870 and 15H05728 for its financial support.

15

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17

Table 1: Ratio of Housing-related Liabilities to Household Disposable Income(percent)
Year
Full sample
30-39
40-49
50-59
age group
age group
age group
1970
11.7
11.2
14.3
11.1
1975
23.2
27.1
26.1
20.1
1980
37.5
43.1
42.7
28.8
1985
51.6
62.9
58.3
40.2
1990
58.4
63.7
73.0
45.5
1995
72.4
86.1
80.9
60.4
2000
92.2
103.3
133.0
72.7
2005
106.0
140.4
134.7
78.1
2010
121.9
171.8
154.2
84.1
2015
136.1
200.7
183.0
92.7
2017
141.8
239.0
176.3
92.9
Average change per year (percentage points)
1970-2000
2.68
3.07
3.96
2.05
2000-2017
2.91
7.98
2.55
1.19
1970-2017
2.77
4.85
3.45
1.74
Notes: The figures show the ratio of housing-related liabilities to household
disposable income (percent).
Source: Family and Income Expenditure Survey, conducted by the Statistics Bureau,
Ministry of Internal Affairs and Communications, Government of Japan (available athttps://www.stat.go.jp/data/kakei/index3.html)

18

Table 2: Loan-to-Value Ratio (percent)
Year
Full sample
30-39
40-49
50-59
age group
age group
age group
1970
36.9
43.3
37.2
11.0
1975
29.4
32.7
41.8
7.8
1980
39.6
39.5
46.9
15.6
1985
50.7
56.4
52.5
42.7
1990
44.1
55.1
22.1
72.1
1995
65.4
69.9
57.6
66.4
2000
52.1
45.3
47.0
52.9
2005
44.7
65.7
36.3
11.7
2010
56.9
73.5
0.6
33.4
2015
83.4
80.7
89.9
81.8
2017
72.4
85.2
52.6
15.7
Average change per year (percentage points)
1970-2000
0.51
0.07
0.32
1.40
2000-2017
1.19
2.35
0.33
-2.19
1970-2017
0.76
0.89
0.33
0.10
Notes: The figures show the loan-to-value ratio, defined as the ratio of new housing
loans to land/housing purchases (percent).
Source: Family and Income Expenditure Survey, conducted by the Statistics Bureau,
Ministry of Internal Affairs and Communications, Government of Japan
Table 3: Homeownership Rate (percent)
Year
Full sample
30-39
40-49
50-59
age group
age group
age group
1975
56.4
47.9
64.6
75.5
1980
61.2
48.9
70.3
83.4
1985
65.0
46.9
73.8
85.8
1990
66.0
42.4
73.7
81.4
1995
64.1
39.1
67.8
82.0
2000
68.5
44.2
75.6
84.6
2005
68.8
46.2
72.3
84.2
2010
71.2
51.8
73.8
83.7
2015
76.0
58.3
77.1
85.1
2017
79.0
62.2
79.1
87.0
Average change per year (percentage points)
1975-2000
0.48
-0.15
0.44
0.37
2000-2017
0.62
1.06
0.21
0.14
1975-2017
0.54
0.34
0.35
0.27
Notes: The figures show the homeownership rate (percent).
Source: Family and Income Expenditure Survey, conducted by the Statistics
Bureau, Ministry of Internal Affairs and Communications, Government of Japan19

Table 4: Ratio of Land/Housing Purchases to Household Disposable Income(percent)
Year
Full sample
30-39
40-49
50-59
age group
age group
age group
1970
2.2
2.5
1.6
2.9
1975
3.4
4.0
2.5
3.8
1980
3.9
4.7
5.3
1.8
1985
3.3
3.3
3.4
2.5
1990
2.3
2.9
2.3
2.1
1995
4.4
6.9
4.9
3.1
2000
2.9
3.7
2.0
3.0
2005
3.2
1.9
2.4
3.0
2010
1.9
6.4
0.5
0.9
2015
2.8
7.5
2.6
1.8
2017
1.8
7.5
0.5
0.3
Average change per year (percentage points)
1970-2000
0.02
0.04
0.01
0.00
2000-2017
-0.06
0.22
-0.09
-0.16
1970-2017
-0.01
0.11
-0.02
-0.06
Notes: The figures show the ratio of land/housing purchases to household disposable
income (percent).
Source: Family and Income Expenditure Survey, conducted by the Statistics Bureau,
Ministry of Internal Affairs and Communications, Government of Japan

Table 5: Ratio of Housing-related Liabilities to Household
Disposable Income by Birth Cohort (percent)Age group
Birth years of cohort
30-39
40-49
50-59
1916-25
20.1
1926-35
26.1
40.2
1936-45
27.1
58.3
60.4
1946-55
62.9
80.9
78.1
1956-65
86.1
134.7
92.7
1966-75
140.4
183.0
1976-85
200.7
Notes: The figures show the ratio of housing-related liabilities
to household disposable income (percent).
Source: Table 1

20

Table 6: Ratio of Housing Loan Repayments to Household Disposable Income(percent)
Year
Full sample
30-39
40-49
50-59
age group
age group
age group
1970
1.2
1.4
1.3
0.8
1975
2.1
2.4
2.5
1.4
1980
3.9
3.9
5.0
3.3
1985
5.4
5.3
6.5
5.0
1990
5.2
4.6
6.7
5.0
1995
6.1
5.8
7.3
6.2
2000
7.3
7.4
10.1
6.3
2005
7.4
7.9
9.2
6.7
2010
8.8
8.7
10.9
8.6
2015
8.7
9.6
10.7
8.2
2017
8.3
9.5
10.0
8.0
Average change per year (percentage points)
1970-2000
0.21
0.20
0.29
0.18
2000-2017
0.06
0.12
-0.01
0.10
1970-2017
0.15
0.17
0.18
0.15
Notes: The figures show the ratio of housing loan repayments to household disposable
income (percent).
Source: Family and Income Expenditure Survey, conducted by the Statistics Bureau,
Ministry of Internal Affairs and Communications, Government of Japan21

Table 7: Ratio of Rent to Household Disposable Income (percent)
Year
Full sample
30-39
40-49
50-59
age group
age group
age group
1970
2.5
3.5
1.4
1.2
1975
2.2
2.7
1.3
1.0
1980
2.3
3.1
1.5
1.0
1985
2.3
3.6
1.5
1.0
1990
2.4
4.2
1.7
1.0
1995
3.2
5.9
2.3
1.5
2000
3.3
6.2
2.2
1.5
2005
3.5
6.5
2.7
1.8
2010
3.3
5.7
2.7
1.9
2015
3.0
5.3
2.6
1.8
2017
2.6
4.9
2.3
1.8
Average change per year (percentage points)
1970-2000
0.03
0.09
0.03
0.01
2000-2017
-0.04
-0.08
0.01
0.01
1970-2017
0.00
0.03
0.02
0.01
Notes: The figures show the ratio of rent to household disposable income (percent).
Source: Family and Income Expenditure Survey, conducted by the Statistics Bureau,
Ministry of Internal Affairs and Communications, Government of Japan

Table 8: Ratio of Housing-related Expenditures to Household Disposable
Income (percent)
Year
Full sample
30-39
40-49
50-59
age group
age group
age group
1970
3.6
4.8
2.8
2.0
1975
4.3
5.1
3.8
2.4
1980
6.2
6.9
6.5
4.4
1985
7.7
8.9
7.9
6.0
1990
7.6
8.8
8.4
6.0
1995
9.4
11.6
9.6
7.7
10.6
13.7
12.3
7.9
2000
2005
10.9
14.4
11.9
8.5
2010
12.0
14.3
13.6
10.5
2015
11.7
14.9
13.3
9.9
2017
11.0
14.5
12.3
9.8
Average change per year (percentage points)
1970-2000
0.23
0.29
0.32
0.19
2000-2017
0.02
0.05
0.00
0.11
1970-2017
0.16
0.21
0.20
0.16
Notes: The figures show the ratio of housing-related expenditures (the sum of rentand housing loan repayments) to household disposable income (percent).
Source: Family and Income Expenditure Survey, conducted by the Statistics Bureau,
Ministry of Internal Affairs and Communications, Government of Japan
22

Table 9: Non-Housing Consumption Propensity (percent)
Year
Full sample
30-39
40-49
50-59
age group
age group
age group
1970
77.2
77.1
77.4
76.7
1975
74.9
74.9
74.6
74.3
1980
75.7
74.5
75.9
76.8
1985
75.1
73.1
75.4
76.1
1990
72.8
68.8
74.3
73.9
1995
69.3
62.8
72.4
70.2
2000
68.9
61.5
68.6
71.7
2005
71.2
62.8
69.4
74.2
2010
70.8
62.6
65.7
74.7
2015
73.8
65.7
69.7
74.1
2017
69.4
59.0
64.1
73.0
Average change per year (percentage points)
1970-2000
-0.28
-0.52
-0.29
-0.17
2000-2017
0.03
-0.15
-0.27
0.08
1970-2017
-0.17
-0.39
-0.28
-0.08
Notes: The figures show the ratio of financial assets net of non-housing liabilities
to household disposable income (percent).
Source: Family and Income Expenditure Survey, conducted by the Statistics
Bureau, Ministry of Internal Affairs and Communications, Government of Japan

Table 10: Ratio of Net Financial Assets to Household Disposable Income (percent)
Year
Full sample
30-39
40-49
50-59
age group
age group
age group
1970
97.9
79.2
97.3
135.8
1975
97.3
78.1
97.1
119.6
1980
125.4
98.6
117.4
163.8
1985
150.2
111.2
137.8
179.3
1990
192.8
137.8
166.3
221.4
1995
212.3
136.4
175.0
251.0
2000
229.0
136.4
192.9
256.1
2005
233.7
136.2
192.9
269.7
2010
231.4
122.5
177.1
270.8
2015
244.2
125.5
172.6
276.5
2017
244.0
116.4
175.4
274.7
Average change per year (percentage points)
1970-2000
4.37
1.90
3.18
4.01
2000-2017
0.88
-1.17
-1.03
1.09
1970-2017
3.11
0.79
1.66
2.95
Notes: The figures show the ratio of financial assets net of non-housing liabilities tohousehold disposable income (percent).
Source: Family and Income Expenditure Survey, conducted by the Statistics Bureau, Ministryof Internal Affairs and Communications, Government of Japan23

Table 11: Ratio of Net Financial Assets to Household Disposable Income by Birth
Cohort (percent)Age group
Birth years of
Increase from Increase from
Increase fromcohort30-39
40-49
50-59 30-39 to 40- 40-49 to 5030-39 to 50-59
49
59
1916-25
119.6
1926-35
97.1
179.3
82.1
1936-45
78.1
137.8
251.0
59.7
113.2
172.9
1946-55
111.2
175.0
269.7
63.8
94.7
158.5
1956-65
136.4
192.9
276.5
56.5
83.6
140.1
1966-75
136.2
172.6
36.4
1976-85
125.5
Notes: The figures show the ratio of financial assets net of non-housing liabilities tohousehold disposable income (percent).
Source: Table 1024

Figure 1. The share of various types of housing loans in new lending
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Whole period fixed-rate loans

Securitized loans (Flat 35)

Elective period fixed-rate loans Variable-rate loans
Source: Housing Bureau, Ministry of Land, Infrastructure, Transport and Tourism, various years, Results
Report on the Survey on the Status of Private Housing Loans (Minkan Juutaku Ron no Jittai nikansuru
Chousa:Kekka
Houkokusho)(available
athttps://www.e-stat.go.jp/statsearch/files?page=1&toukei=00600670&tstat=000001016940)

Figure 2. The level of understanding about the impact of possible interest rateincreases on the loan repayment amount

0%

10%

20%

30%

40%

50%

Fully understandWorried about whether I understand sufficiently
Do not understand at all

60%

70%

80%

90%

100%

More or less understandDo not understand well

Note: The figures are for those who have taken out variable-rate loans.
Source: Japan Housing Finance Agency (2019), 2018 Survey on the Status of Private Housing Loan Users(2018-nendo
MinkanJuutakuRon
Riyoushano
Jittai
Chousa)(available
athttps://www.jhf.go.jp/about/research/loan_user.html#data01)

25

Figure 3. Planned response to the increase in the loan repayment amount in theevent of interest rate increases

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Continue repaying as I have the financial capacity to do so
Repay fully if the interest burden becomes too large
Repay part of the loan early to reduce the interest burden
Refinancing
No idea
OthersNote: The figures are for those who have taken out variable-rate loans.
Source: Japan Housing Finance Agency (2019), 2018 Survey on the Status of Private Housing Loan Users(2018-nendo
MinkanJuutakuRon
Riyoushano
Jittai
Chousa)(available
athttps://www.jhf.go.jp/about/research/loan_user.html#data01)

26