Financial Crisis and Within-City Heterogeneity in Land Prices: The Role of REIT Penetration

This paper investigates the heterogeneous impact of the 2007–2008 global financial crisis on Japan’s land and housing market via real estate investment trust (REIT)-related investment. REITs’ property acquisitions fell significantly in Japan after 2007 due to the global credit crunch, which was orthogonal (under necessary controls) to the domestic real estate market fundamentals. Exploiting this variation, we present casual evidence that REIT acquisition has a positive effect on local land prices in general but the effects are heterogeneous across different market segments within a city. Specifically, we find a more pronounced post-crisis price reduction for larger land parcels (predominantly used for multi-family home (MFH) developments) in regions with higher pre-crisis REIT acquisition intensity. In contrast, the prices of smaller plots, typically used for developing single-family homes (SFHs) and infrequently represented in REIT portfolios, remained largely unaltered. We observe no significant shifts in the liquidity of these larger parcels, suggesting an inelastic land supply. However, falling land prices increased construction starts of MFHs relative to that of SFHs.