The impact of the rise and collapse of Japan's housing price bubble on households’ lifetime utility

Takeshi Niizeki, Fumihiko Suga

Research output: Contribution to journalArticlepeer-review

Abstract

This study estimates the impact of the dramatic changes in housing prices during Japan's bubble from the late 1980s to the 1990s on households’ asset accumulation and utility over their life cycle. We construct a life-cycle model explaining households’ consumption/saving and housing decisions under collateral and borrowing constraints. We estimate this model using data from the Family Income and Expenditure Survey (FIES), which includes data on households’ housing wealth estimated from objective information. Using the estimated model, we then conduct a counterfactual simulation in which we assume that housing prices remained constant during the bubble period. Doing so allows us to quantify the gains/losses of lifetime utility due to the housing price boom and bust. We find that 72.2% of the households experienced an average decrease in lifetime utility equivalent to 5.7% of lifetime income. On average, Japan's housing price boom and bust caused a loss in lifetime utility equivalent to 4.7% of lifetime income. Moreover, we compare the impact of the housing price bubble across cohorts and find that the impact was greatest for those who experienced the bubble at ages 35–45.

Original languageEnglish
Article number101136
JournalJournal of the Japanese and International Economies
Volume60
DOIs
Publication statusPublished - Jun 2021

All Science Journal Classification (ASJC) codes

  • Finance
  • Economics and Econometrics
  • Political Science and International Relations

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