Unlocking housing equity in Japan

Abstract

Mitchell, Olivia S., and Piggott, John-Unlocking housing equity in JapanMuch prior literature on asset patterns among the elderly has mostly overlooked housing wealth as a determinant of retiree wealth, particularly in the Japanese context. Yet releasing equity in housing may be a natural mechanism to boost consumption, reduce public pension liability, and mitigate the demand for long-term care facilities in Japan. Our study evaluates what might be needed to implement reverse mortgages (RMs) in this country. Policies could include exempting RMs from capital gains tax and transactions tax, along with mechanisms to make annuity income flows nontaxable, along with interest rate accruals for RMs. In addition, housing market reforms to enhance information flows would be needed, particularly regarding new and existing housing trades, which could permit the securitization of housing loans and lines of credit. Other improvements in capital markets could also help, including the establishment of reinsurance mechanisms to help lenders offer these reverse mortgages while having some protection against crossover risk. In the Japanese case, demand for RMs will be dampened by declining residential housing values as well as low interest rates and long life expectancies. Nevertheless, we conclude that RMs can be a good way to finance elderly consumption in Japan, particularly against the backdrop of governmental financial stringencies.

Reverse Mortgage Participation in the United States: Evidence from a National Study

“…Another interesting finding of this study was that having long-term care insurance coverage was negatively associated with having a reverse mortgage loan. This finding provides further support to Mitchell and Piggot's [20] findings that many people used reverse mortgages as a tool to meet their long-term care needs.…”

Do the elderly reduce housing equity? An international comparison

“…In principle, when negative income shocks occur and people need resources to finance consumption, homeowners could draw on home equity by financial services that do not require selling the house, such as refinancing the mortgage, or home equity lines of credit, such as reverse mortgages (Mitchell and Piggott, 2004). In particular, lower mortgage rates stimulate refinancing, allowing otherwise liquidity-constrained households to access their home equity and finance current consumption (Hurst and Stafford, 2004).…”

“…In this context, reverse mortgages are potentially important, allowing house-rich but cash-poor old people to sustain consumption without leaving their property. 9 Even though at present transaction costs and up-front fees tend to reduce take-up rates among the elderly, financial experts expect these products to become appealing in the future Piggott, 2004 andMitchell, Piggott, Sherris andYow, 2006). 10 There is also some evidence that reverse mortgages tend to reduce ownership transitions.…”

Housing Wealth and Housing Decisions in Old Age: Sale and Reversion

“…11 The survey was conducted by an independent research company in April 2006. 12 For example, among others, Case & Schnare (1994), Chian & Tsui (2005), Hancock (1998), Kutty (1998Kutty ( , 1999, Mayer & Simons (1994), Merill et al (1994), Mitchell & Piggott (2004), Ong (2008), Rasmussen et al (1995) and Venti & Wise (1991). 13 The Spanish Observatory of Old Age (IMSERSO, 2002) estimates that, in Spain, there are 240 000 institutional beds and that approximately 3 per cent of the elderly are in institutional care, although this figure is four times higher for those aged 80 and over.…”