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A Study of the Asset Value of Housing

summary

The market must properly assess the quality of housing to enable the market-driven accumulation of good-quality housing stock and the improvement of existing stock. This is a major issue to be addressed by housing policy. At present, however, the asset value (market price) of housing decreases over time, regardless of the quality of the building.

This study aims to help establish housing policy that will encourage the fair assessment of the quality of housing. Firstly, the factors that affect the asset value of housing (buildings) were selected. Secondly, there was analysis and discussion of how and to what extent these factors affect the assessment of housing quality, and what the people involved in the assessment think of the assessment methods and outcomes. Lastly, measures to adequately reflect the quality of housing on the asset value were examined and proposed.

Interview surveys of real estate companies, developers and financial institutions have revealed that in Japan the value of a wooden house becomes essentially zero 20 years after construction, and thus the asset value of housing is not maintained. The location or the site is the most important factor affecting the housing prices; the quality of the building is virtually ignored (Chapter 2).

In a survey on sales of existing homes, the factors affecting the sales prices of condominiums and the extent of effect were quantitatively examined through a hedonic analysis. A survey conducted in the southern part of Setagaya Ward (Tokyo) has shown that: firstly, the impact of the site (traffic convenience) on the price is greater in the sales of existing condominiums than newly-built ones; and secondly, the spaciousness of the condominium and the identity of the developer have positive effects on the prices of existing condominiums. It was assumed that the identity of the developer of the housing was used as a criterion in evaluating the quality of housing (Chapter 3).

In a consumer awareness survey targeted at people who have purchased condominiums and those planning to purchase one, a conjoint analysis was used to quantitatively measure which aspects of quality were emphasized and to what extent when purchasing a home. In the survey, eight factors related to the quality of housing were shown, and interviewees were asked to choose from several condominiums each combining the factors in varying degrees. The results indicate that both those "who purchased" and those "who wish to purchase" are willing to spend money for good- quality housing, and they showed preference to earthquake resistance and sound insulation. When they are asked to make a purchase decision, they emphasize factors such as exposure to sunlight, heat-insulation and security. The researchers found that the factors emphasized vary depending on the experience of the purchaser (Chapter 4).

Interview surveys were then conducted on housing associations and real estate companies in the United States to examine how the asset value of housing is evaluated and how the value is maintained. Surveys indicate that the location (e.g. school district, landscape), standardness (unusual houses are difficult to sell), the external appearance of the house, and the maintenance records were the major factors affecting the asset value. The reasons why the asset value is maintained included: a) ease of gathering ample information (e.g., inspection and repair records) to judge the quality of housing; b) residents are aware of the need to maintain and repair the house and try to increase its value; and c) houses are unlike "trendy" goods; the fundamental styles and materials used in their construction changes little over time (Chapter 5).

The results of these surveys suggest that the following issues need to be addressed to ensure the proper assessment of housing quality by the market: a) the lack of information about the quality of housing, b) the lack of consumer knowledge about housing (housing literacy); and c) the lack of systems supporting consumers. After examining the current situation in Japan, measures to ensure that the quality of housing is reflected in the real estate asset value were examined. Lastly, eight concrete proposals were made, including: a) the diffusion and widespread adoption of housing performance indicator system and; b) support for people repairing rental housing (Chapter 6).

Key words

Quality of housing, asset value, existing home, hedonic, conjoint, United States

issue

Reports No.65/2006 Mar.

stocks

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