The Relation between Housing and Financial Wealth: Evidence from Japanese Metropolitan Households

Housing wealth and financial wealth are the most important asset categories in households' portfolios, and they are the joint outcomes of one decision process by households. This paper investigates how the investment decision for housing and financial wealth of households are interrelated with the model based on Hochguertel and van Soest (2001) using the cross-sectional data drawn from the survey on Japanese metropolitan households. I use a bivariate regression model for housing demand and financial demand assuming lower limitation constraints on housing demand, in which the financial demand is switched to the different function according to the housing demand constraint is binding or not (Type 4 Tobit Model). It is found that the effect of the increase in renters' income or age on their financial demand is not clear implying that part of their financial demand spills over to housing demand, and it is also found that young homeowners use part of their home mortgage debts to hold financial assets (Excess Mortgage Demand) in the recent low interest rate condition.