Compared to western countries, Japan still has a large number of new housing starts while vacant stocks have been increased over time. A possible explanation is that effective age of houses is short in housing market: existing housing stock becomes economically obsolete once new housing equipment emerge among newly built houses. Although reform and renovation take place to update part of the equipment, some may be difficult to be inserted through renewal, and thus, newly built houses play a crucial role to update housing quality to the contemporary needs.
The purpose of this paper is to measure (i) the degree of economic obsolescence of properties from lacking emerging housing equipment and (ii) effect of renewal activities on improving housing quality, price, and depreciation. To capture such a market mechanism, which has been ignored in architectural literature, we employ a novel dataset on resale transactions of detached houses in the Tokyo metropolitan area with details on their housing equipment and renewal activities.
First, we investigate relations between diffusion rate of housing equipment and renewal activity. For sanitary equipment, diffusion rate has been increased over time, and even for old houses, the equipment is inserted through renewal. For equipment relating to building structure, on the other hand, such a renewal adjustment is not so common.
Second, we investigate the degree of economic obsolescence from lacking emerging housing equipment, employing a hedonic regression technique. Old houses without the up-to-date housing equipment exhibit lower price premium among their age cohort, suggesting economic obsolescence.
Third, we investigate the effect of reform and renovation on property price and depreciation speed, through similar estimations. Although renewal activities are positively reflected in transaction price for old houses, renovation that fundamentally update the quality of a house rarely occurs. Alternatively, make-up inner-reform is common, which is unable to slow down depreciation.
Fourth, subsample analyses are conducted on the locational heterogeneity within the Tokyo metropolitan area. In outer suburbs (far away from the center), diffusion rate of housing equipment tends to be low, renovation rarely takes place, and most of the renewal activities remain to be make-up inner reform. Therefore, the economic obsolescence from lacking sanitary equipment and depreciation tend to be severe, while renewal, if taken place, has a large effect on slowing these down.
The above results imply that old houses face a mismatch between their poor housing equipment and contemporary needs for living, and that reconstruction may play a role to fundamentally update the housing quality because of the difficulty in updating through renewal.
