On the Evolution of the House Price Distribution

First draft: April 22, 2010This version: August 1, 2010We would like to thank Tomoyuki Nakajima, Kiyohiko Nishimura, Misako Takayasu, Hiroshi Yoshikawa, and the participants at the UNECE/ILO meeting on consumer price indices in Geneva for helpful comments and suggestions. This research is a part of the project entitled: Understanding Inflation Dynamics of the Japanese Economy, funded by JSPS Grant-in-Aid for Creative Scientific Research (18GS0101). Ohnishi acknowledges grant from the Ministry of Education, Culture, Sports, Science, and Technology of Japan (Grant-in-Aid for Young Scientists (B) No. 20760053).Is the cross-sectional distribution of house prices close to a (log)normal distribution, as is often assumed in empirical studies on house price indexes? How does it evolve over time? To address these questions, we investigate the cross-sectional distribution of house prices in the Greater Tokyo Area. We find that the price of house i, Pi, is characterized by a distribution with much fatter tails than a lognormal, and the tail part is quite close to that of a power-law distribution. We also find that the size of house i, Si, follows an exponential distribution. These findings imply that the size adjusted price, defined by ln Pi - aSi, is normally distributed. We confirm this for most of the sample period, but fail to do so for the bubble period, during which the price distribution has a fat upper tail even after size adjustment. The bubble was concentrated in particular regions in Tokyo, and this is the source of the fat upper tail.学術創成研究費 = Grant-in-Aid for Creative Scientific Research20 p