Intergenerational asset transfers through residential properties in Japan

Abstract

Within the context of post-war Japan, the rapid economic growth expanded the middle-class, and home ownership has become a cornerstone in Japans housing policy, due to the long-term low interest mortgages provided by the Japanese government. After the bursting of the bubble economy in the 1990s, however, an increasing number of people became incapable of acquiring private residential properties due to the prolonged depression, particularly among the young cohort.

Nevertheless, the Japanese government has still oriented housing policy towards home ownership. However, in recent decades, the target of housing policy has shifted toward the integration of parental (and grandparental) households and filial households from the middle-class. In 2003, the allowable amount of a gift tax exemption concerning parental financial supports for housing purchases has been expanded up to 35,000,000 yen (= approximately 313,313 USD) without any taxations in order to promote home ownership in filial households by compensating the lack of capital for housing purchase through early intergenerational asset transfers from their parental households.

In this context, this thesis explores the characteristics of contemporary Japanese households who received parental financial assistance, to highlight the growing magnitude of asset transfers for home equity acquisition. Empirical evidence was obtained by statistically analysing the Keio Household Panel Survey (KHPS) from the Panel Data Research Center at Keio University. The insights that can be gleaned from this research can thus contribute to an understanding of mismatches between households circumstances and housing policy.

This thesis sheds light on the structure of how parental financial supports has streamed toward young, low income and low assets households through residential property acquisitions. This process has enabled filial households to purchase private homes without taking on excessive levels of debts, thereby diminishing the mortgage risks they would otherwise have to take on to access such high quality housing. These findings are particularly pronounced when it comes to the husbands parental financial assistance.

The findings of statistical analyses imply that current housing policy leaning to home ownership has a potential to generate stratification between households with parental financial supports and counterparts without it through home purchases. With the decreasing number of middle class households that are able to follow the standard trajectory, the home-ownership-rate has been declining in recent decades. This change in the post-bubble economy illustrates a need for several housing options other than privately owned houses in order to provide affordable housing for households who are incapable of accessing home ownership.