[2015-5] Effects on Consumption and Income Distribution of the Rise in Monthly Housing Expenses in the Housing Market

Consumption Negative Households Increasing SNA Landlords Trend
Research Department

  With the proportion of households paying rent on a monthly basis increasing
rapidly recently, there is mounting interest in the effects of a rise in monthly rent
on consumption and income distribution. As a rise in monthly rental charges works
in such a way as to increase landlords’ consumption and decrease that of
tenants, the effects of a rise in monthly rents on total consumption are highly
likely to vary depending upon landlords’ and tenants’ propensity for
consumption. Notably, the rise in the number of households paying rent monthly,
being centered on low-income households, may have a negative effect on income
distribution and may, together with the rise in monthly housing expenses, bring
about a structural contraction of consumption. In this regard, an empirical analysis
is conducted in this paper of the effects of changes in housing market structure
on consumption and income distribution, based on a wide range of data sources
including the Household Trends survey, the Household Finance and Welfare survey
and the SNA.

  According to the results of the analysis, the rise in monthly housing expenses
has reduced total household consumption to a significant extent, and its effects
have been strongly evident mainly in those in low-income brackets and the age
cohorts of the under forties. It is noteworthy that an empirical analysis targeting
landlords and tenants shifting from leasehold deposit-based to monthly
payment-based rental contracts finds that a rise in monthly housing expenses does
not lead to an increase in landlords’ consumption but does bring about a
decrease in that of tenants. In addition, it can be confirmed from an analysis of
income distribution that income imbalances are worsened by a rise in monthly
housing expenses. However, it is considered somewhat premature to determine
whether these effects of the rise in monthly housing expenses are a transitional
phenomenon occurring in the course of changes in the housing market or whether
they will continue over the medium and long term. Meanwhile, although in the
course of the expansion of the share of monthly rentals the volume of housing
transactions has been increasing significantly as the housing market is reoriented
toward a focus on real demand, the scale of price increases has been more
limited than in the past. Going forward, in order to minimize the negative effects
of the progress of housing market structural changes, such as the sluggishness of
domestic demand, policy efforts need to be strengthened to increase the supply of
public/private rental housing and expand the bases for the income of the
low-income groups.

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