Initial Wealth Positioning and the Timing of Homeownership in Japan

Initial downpayment for home ownership could prove to be a binding constraint for households aspiring to be homeowners. Households in Japan require 30 to 45% of the house value as downpayment. This not only affects their decision on the timing of homeownership but also has significant influence on the type of house they would eventually buy. Higher initial wealth positioning can ease the choice and timing of homeownership. Households often inherit wealth in the form of cash either to buy house or land or to construct a house from their parents. Proceeds from the sale of already possessed real estate also helps in building downpayment for household's desired house. Using survival analysis, the paper estimates the roles that the intergenerational wealth transfer and possession of real estate has played in the timing of homeownership in Japan. The data used in this paper is from the Ministry of Infrastructure, Land and Transportation survey on household home finance conducted during 1988 to 1995. By comparing the timing of homeownership for households who do not have the privilege of either inheritance or possession of real estate with those households who have had either of these forms of wealth, the paper estimates by how many years the homeownership is advanced for the privileged households.