from their total consumption due to the lack of data. This is potentially problematic, since housing rent (which represents a major part of housing-related expenditure) is likely to increase when land prices rise, causing an upward bias in housing wealth effect estimates.

The remainder of the study is organized as follows. The next section provides a review of the related literature and introduces our FIES-based micro dataset, while Section 3 describes our empirical strategy and estimation methodology. Section 4 then presents the results (of both the cross-section and pseudo-panel based regressions) and discusses their implications. Finally, Section 5 concludes.

## 2 Related literature and data construction

### 2.1 Literature review

Following the strategy proposed by Attanasio and Weber (1994), which is summarized in Atalay et al. (2014), we compare the marginal propensity to consume (MPC) out of housing wealth between old and young households to find the most plausible explanation for the co-movement of land prices and household consumption. If the estimated MPC is larger for older than for younger households, household behavior is consistent with the pure wealth effects hypothesis, since the standard LC/PIH predicts that those with a shorter remaining life-span should consume a larger part of windfall gains such as an increase in housing wealth than those with a longer remaining life-span, i.e., the young, provided that bequest motives do not play a role. On the other hand, if the consumption of younger households is more responsive to changes in housing wealth than that of older households, this behavior would be consistent with either the collateral or the common factor hypothesis. In this case, we further investigate whether household consumption responds to anticipated increases in housing wealth. If household consumption is responsive to anticipated rises in housing wealth, we conclude that the collateral hypothesis is the most plausible explanation. If not, the third factor hypothesis is chosen as a major explanatory factor for the co-movement of land prices and household consumption in Japan.

Empirical studies examining the different possible explanations arrive at different conclusions depending on the country they focus on and the type of data used. Using a pseudo-panel of households in the U.K., Campbell and Cocco (2007) show that the nondurable consumption response to changes in housing prices is highest for old homeowners and lowest for young renters, providing support for the pure wealth effect hypothesis. On the other hand, panel data-based studies on the U.S. (Cooper, 2013) and Australia (Windsor et al., 2015) as well as a cross-sectional study on Australia and Canada (Atalay et al., 2014) appear to support the collateral effect hypothesis. Finally, the common factor effect hypothesis is supported by cross-sectional studies on the U.K. (Attanasio and Weber, 1994, and Attanasio et al., 2009), as well as by a panel-based study on Australia (Windsor et al., 2015).

Another issue this study focuses on is the magnitude of the housing wealth effect, i.e., the MPC. Previous studies on the estimated magnitude can be broadly categorized into the following three