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Table 3 Probit coefficients and marginal effects (the effect of tenure security) Tenant-owned housing Landlord-owned housing Variable Coeff. S.E. M.E. Coeff. S.E. M.E. Intercept 0.72 ∗∗∗ 0.182 0.77 ∗∗∗ 0.173 Built pre–1970 Move-in pre–1970 −0.73 ∗∗∗ 0.092 −0.17 −1.23 ∗∗∗ 0.185 −0.45 Move-in 1971–1980 −0.77 ∗∗∗ 0.247 −0.22 −1.20 ∗∗∗ 0.189 −0.44 Move-in 1981–1990 −1.01 ∗∗∗ 0.235 −0.32 −1.22 ∗∗∗ 0.164 −0.44 Move-in 1991–1998 −0.90 ∗∗ 0.337 −0.27 −0.89 ∗∗∗ 0.154 −0.31 Built 1971–1980 Move-in 1971–1980 −0.43 ∗∗∗ 0.113 −0.10 −1.02 ∗∗∗ 0.185 −0.37 Move-in 1981–1990 −0.26 0.337 −0.06 −0.64 ∗∗∗ 0.162 −0.22 Move-in 1991–1998 −0.66 ∗ 0.342 −0.18 −0.60 ∗∗∗ 0.146 −0.20 Built 1981–1990 Move-in 1981–1990 0.02 0.136 0.004 −0.51 ∗∗∗ 0.184 −0.17 Move-in 1991–1998 −0.31 0.404 −0.07 −0.23 0.158 −0.07 SRC 0.08 0.152 0.43 ∗ 0.221 Block 0.29 0.467 −1.50 ∗∗∗ 0.521 Others 0.18 0.353 0.42 0.481 Room 0.06 ∗∗ 0.022 0.04 0.025 Story 0.12 ∗ 0.077 0.14 ∗∗ 0.066 Income 0.05 ∗∗ 0.019 0.09 ∗∗∗ 0.019 Number of observations 2267 2240 Log-likelihood 177.34 276.15 ∗∗∗ indicates significance at 1%; ∗∗ indicates significance at 5%; ∗ indicates significance at 10% 6 Conclusion In the paper, we have investigated three tenure modes: owner-owned housing; tenant-owned housing; and landlord-owned housing. We developed a model to determine the effects of the rental externality and tenure security on housing quality. We focused on both maintenance by the owner, which raises the quality of the accommodation, and utilization by the user, which reduces its quality. Our main theoretical and empirical results are summarized below. • Because investment is not verifiable, property rights in tenant-owned housing are not perfectly protected. Hence, a rental contract for land creates a rental externality problem: the tenant under-maintains and over-utilizes the dwelling. Thus, when the tenant’s utilization and maintenance are independent or are substitutes, the quality of tenant- owned housing is lower than that of owner-owned housing. The effect of tenure security 22
on the quality of tenant-owned housing is ambiguous when the tenant’s utilization and maintenance are independent or are substitutes. This is because tenure security increases not only the tenant’s maintenance but also the tenant’s utilization. • If utilization by the tenant is not verifiable, then a rental contract for housing creates a rental externality problem: the initial tenant over-utilizes the housing. Thus, when the landlord does not react to a tenant’s utilization, the quality of rental housing falls below that of owner-owned housing. When the landlord reacts by reducing maintenance in line with the increased utilization rate, the higher the utilization rate, the lower the landlord’s maintenance. Therefore, in this case, rental-housing quality is also reduced by the rental externality. Because tenure security in Japan weakens the property rights of landlords and strengthens the tenure rights of tenants, tenure security further increases tenants’ utilization and decreases landlords’ maintenance when tenants’ utilization and landlords’ maintenance are independent or are substitutes. Hence, in these cases, tenure security accelerates the deterioration of rental housing as does the rental externality. • The empirical tests, conducted using data from the 1998 Housing Demand Survey of Japan, show that tenant-owned housing and landlord-owned housing are less likely to be in a sound condition than is owner-owned housing. Furthermore, the empirical results confirm that tenure security has an ambiguous effect on tenant-owned housing quality and accelerates the deterioration of the quality of landlord-owned housing. Thus, our empirical results confirm the theoretical predictions. 23
Page 1 and 2: Rental Externality, Tenure Security
Page 3 and 4: Thus, the rental externality proble
Page 5 and 6: model are described in section 5, i
Page 7 and 8: [0 ¯γ2], where 0 < ¯γ2. 10 In e
Page 9 and 10: ever, property rights are not perfe
Page 11 and 12: 2.1.3 Landlord-owned housing In the
Page 13 and 14: (17) are V S T u = v1u − gu + α
Page 15 and 16: total effects reduce m. However, th
Page 17 and 18: 5 Empirical Analysis 5.1 The Data a
Page 19 and 20: use four categories determined by b
Page 21: educe the quality of dwellings. The
Page 25 and 26: Iwata, S., 2001. The Japanese tenan
Page 27 and 28: u L u u O S E L E T E L mT(u) E O m

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