Conclusion and Implication

(1) The Verification of “New Family Economy Theory”

This study adopts the New Family Economy Theory proposed by Becker (1960) to test the experiences in Japan. Previous study, i.e., Simon et al. (2009), Hui (2012) and Lin et al. (2013), all found the negative relationship between fertility rate and housing price.

A. The Fertility Rate and Housing Price tend to move in the same direction

As the results of VECM, fertility rate of fourth lag had a positive effect on

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current housing prices. This finding is different from the new family economic theory and previous studies. The possible explanation is that fertility rate continued to decline and rebound in 2005 while housing price index picked up during the same period. Japan’s housing price could be back to fundamental (i.e., habitat) demand after the burst of bubble. Therefore, the mutual exclusion effect of giving to birth and buying house is unable to verify in Japan.

B. The mutual exclusion effect between giving birth and consumption

Results of VECM indicated a significant negative effect between fertility rate of fourth lag and household expenditure. We can explain the results according the new family economics. Since new members of households (i.e., children) will be new variables in the utility function for families, households should make a selection between giving birth and consumption according to their rational decision due to the limited budget. Both low fertility rate and low household consumption are important issues for the whole country in Japan. The government should avoid the limited effectiveness in policy making due to the mutual exclusion of these two factors.

Besides finance and taxation measures, maternity subsidy and fertility reward may also be adopted to encourage giving birth and consumption.

(2) Different results on the wealth effect of housing price appreciation

A number of previous studies suggest that appreciation of housing price could bring wealth effect through various channels (Carroll et al., 2006；Case et al., 2013).

Conversely, some studies indicated the negative relationship between housing prices and consumption as housing prices could crowd out consumption and the subsequent economic growth (Lin et al., 2013). The empirical results in this study suggest that housing prices of fourth lag had a negative effect on current consumption, which is consistent with Lin et al. (2013). The explanation for the different results in the US

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versus Japan and Taiwan may be that the refinancing activities from home equity in the US are more prevailing than those in Japan and Taiwan, which lead to higher liquidity of mortgage equity withdrawal (MEW) behavior in the US than Japan and Taiwan. The appreciation of housing prices could therefore enhance homeowners’

wealth and then encourage consumption and result in the wealth effect. In contrast, the home equity refinancing behaviors in Japan or Taiwan are not as popular as in the US. Homeowners tend to keep the houses as heritage for next generations as mortgages are paid off in Japan and Taiwan. Appreciation in the housing prices only seems to be “paper wealth” if owner did not realize their gains by selling houses or refinancing. In addition, households in Japan and Taiwan treat houses as an important security target in their whole life as well as socioeconomic status. Thus, when housing prices exceed people’s affordability, households could increase savings and decrease consumption for future mortgage payment. Finally, household expenditures tend to decrease because of the surge of housing prices. In summary, this study suggests that the reasons of different empirical results in different countries could be affected by the financing behaviors of households, traditional belief in relation to affordability of housing prices.

(3) Conclusion

An increasing number of studies have focused on the recent stagnant wage growth and consumption as house prices increases. Japan is the typical example of deflation after bubble burst in the early 1990s. Becker (1960) proposed the New Family Economic Theory which treats children as a normal good and suggests that parents may make the decision of fertility by their rational analysis. Based on this theory, there should be conflicting relations between decisions on buying houses, consumption and giving birth. There were many studies exploring the relationship between housing prices and consumption, and the relationship between fertility rate

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and housing prices. However, few studies were found to discuss these three issues at the same time. In view of this gap, this study combined these three factors to explore their inter-relationship in the environment of “Heisei recession” in Japan.

Empirical results show that fertility rate of fourth lag had a negative significance on current household expenditure. However, fertility rate of fourth lag had a positive significance on current housing price. The possible explain is that change of fundamental demand results in the decline of housing prices. In addition, some studies indicated that appreciation of housing price could lead to wealth effect for homeowners through many different ways. The results show that household expenditure of fourth lag had a positive effect on current housing price. In other words, they exist mutual exclusion effects. Different results may be attributes to the refinancing behaviors, traditional belief and housing affordability. We expected the results of this study may provide precious viewpoints to explain the causes of low fertility rate and low consumption in relation to high housing prices, and offer some implications for the decision making in the housing and financing polices in the future.

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