Skip to main content

Land Prices and Fundamentals

April 2007
Koji Nakamura*1
Yumi Saita*2

Click on wp07e08.pdf to download the full text.

Abstract

This paper examines the long-term relationship between macro economic fundamentals and the weighted-average land price indicators, which are supposed to be more appropriate than the official land price indicators when analyzing their impacts on the macro economy. In many cases, we find the cointegrating relationships between the weighted-average land price indicators and the discounted present value of land calculated based on the macro economic fundamentals indicators. We also find that the demographic factor has impacts on real land prices. The error-correction analysis using the cointegrating relationships shows that not only the changes in the discounted present value of land, but also the changes in the demographic factor and bank lending have an influence on the fluctuations of real land prices. Based on the analysis, the recent change in the trend of land prices in Japan is explained by the increase in the discounted present values of land in the accommodative monetary environment, the convergence of the actual land prices to the long-term equilibrium level, and the changes in bank lending.

Key words:
weighted-average land price indicators, discounted present value of land, cointegration analysis, error-correction model

JEL Classification: C32, E39

We would like to thank Kiyohiko Nishimura, Yoichi Matsubayashi, Naohito Abe, Toshitaka Sekine, Hideo Hayakawa, Eiji Maeda, Takeshi Kimura, Masahiro Higo, and many staff members at the Bank of Japan for helpful comments and discussions. We are grateful to Chie Arai for her research assistance. Any remaining errors belong to the authors. The views expressed in this paper are those of the authors and do not necessarily reflect those of the Bank of Japan or the Research and Statistics Department.

  • *1 Research and Statistics Department, Bank of Japan
    E-mail: kouji.nakamura@boj.or.jp
  • *2 Research and Statistics Department, Bank of Japan
    E-mail: yumi.saita@boj.or.jp

Notice

Papers in the Bank of Japan Working Paper Series are circulated in order to stimulate discussion and comments. Views expressed are those of authors and do not necessarily reflect those of the Bank.

If you have any comment or question on the working paper series, please contact each author.

When making a copy or reproduction of the content for commercial purposes, please contact the Public Relations Department (webmaster@info.boj.or.jp) at the Bank in advance to request permission. When making a copy or reproduction, the source, Bank of Japan Working Paper Series, should explicitly be credited.