Credit constraints and the delay of homeownership by young households in Japan

Japan has been suffering from a decline in the rate of young adults homeownership for a long time. The reduction of the homeownership rate for young adults suggests a delay of tenure transition from renting to owning a home. Such delays further imply that there is insufficient wealth accumulation and a low level of welfare. This paper examines these influences of the credit rationing and the credit rationing impact on the reduction in the young adults’ homeownership rate.

Credit rationing impacts the timing of house purchases and the value of the houses at the same time. This paper estimates these impacts jointly using a simultaneous equation system (minimum distance estimation) and the micro data on Japan.

This paper divides the effect of credit rationing on the timing into direct and indirect effects. The former is the rationing effect on timing, keeping the other variables constant, while the latter is the effect via changes in house values. This paper finds that the indirect effect reduces the rationing effect on the timing by decreasing house values. Furthermore, the results show that credit rationing delays home acquisition by prospective young owners (direct effect) and necessarily lowers the quality of houses they purchase.

In the previous papers, the endogeneity among the variables related to the housing purchase was not addressed. To separate the endogeneity of the timing from the house value, this paper applies the simultaneous equation model. Furthermore, this paper exhibits that there are direct and indirect effects of credit rationing on the timing of housing purchase made by young households. None of the previous papers recognize these two effects.