Investment Characteristics of Housing Market -Focusing on the stickiness of housing rent-

The turmoil in the international financial market since the subprime loan crisis has had a significant effect on the real-estate investment market in Japan, particularly the Japan real-estate investment trust (J-REIT) market. This suggests that the real-estate investment market is becoming part of the financial market. It is necessary to precisely understand the mechanism of risk generation and cash flow in the real-estate market to understand the characteristics of the real-estate investment market.The purpose of this study is to statistically clarify the characteristics of the five problems that have been recently pointed out as risk factors in the real-estate investment market for housing. Specifically, we have attempted to clarify the following five intrinsic problems, which are considered to be characteristics of the housing market: 1) the return problem, 2) the small-scale investment problem, 3) the risk associated with the adjustment of rent, 4) the key tenant problem, and 5) the inflation problem, all of which have been pointed out to be problems in the housing and retail markets.Regarding the risk associated with the adjustment of rent, we investigated the actual situation in the housing market by considering the decrease in housing rent with the age of the building and the adjustment of housing rent when a new contract is concluded between a landlord and a new tenant. The results indicated that the yearly rate of decrease in housing rent for nontimbered houses is as high as approximately 6% over the first five years after construction, but decreases to 2.6% over the 5th to 10th years and 2.5% over the 10th to 20th years, indicating that the long-term rate of decrease in housing rent is small. The probability of no change in rent was converted to a yearly value of 0.6585, which means that the revenue from the housing rent of 65% of leasehold properties does not change. This result revealed that housing rent in the Japanese market is extremely sticky compared with that in the US. Regarding the risk associated with the adjustment of rent, the probability of downward adjustment of the housing rent should be considered; however, in most cases, the housing rent is left unchanged. Even when the housing rent is adjusted downward, decreases of more than 10% comprised only 11.2% of all the adjustments. Also note that the occurrence of rent adjustment is random with respect to time; the housing rent market is not strongly affected by the economic environment, in contrast to the market for office buildings; a turnover of residents occurs because of events such as marriage, childbirth, and relocation, regardless of the economic cycle, causing the housing rent to change