Vacancy and the Price Adjustment Mechanism for Housing Markets in Japan

This paper examines how vacancy rates as indicators of excess demand or supply affect the price in the housing market. Although this relationship has been widely accepted in theory, it has not been empirically studied in Japan mainly because of the limited data availability. In this study, I used the vacancy data for 11 largest cities in 1983, 1988, 1993, and 1998 contained in The Housing and Land Survey of Japan and estimated combined cross-section, time-series regression equations of the change in the price of rental housing market (rent). The result shows the existence of the price adjustment mechanism with fairly long time lag. Based on these equations, I estimated the natural vacancy rate defined as the vacancy rate when the market is in equilibrium for each 11 city. From these results, I also examined changes happened in the rental housing market in 1990's.