Beyond the Bubble: Structural Drivers of Tokyo’s High Housing Prices New!

This study develops and empirically tests a unified equilibrium model of the housing market. The model integrates user-cost theory, expectation formation, and urban growth dynamics. Using monthly data for the Tokyo metropolitan area from 1986 to 2025, the model jointly estimates housing prices, rents, and financial user costs (FUC, Type B: 80% debt, 20% equity) within a cointegrated VAR (VECM) framework. The Johansen test identifies a single long-run cointegrating relationship, in which housing prices are jointly determined by rental fundamentals and financial conditions. The estimated adjustment coefficient (αₚ = −0.21) indicates a price-led equilibrium mechanism, where prices absorb disequilibria while rents adjust sluggishly. Counterfactual simulations based on the theoretical equilibrium show that a +50 basis-point rise in interest rates reduces the implied price-to-rent (P/R) ratio by 18%, whereas an identical increase in price expectations raises it by 29%, yielding an elasticity ratio of 1.6 to 1 in favor of expectations. Extending the model to include urban-growth premiums (ηₜ) reveals that post-2002 deregulation, infrastructure investment, and urban functional upgrades have structurally raised the equilibrium P/R ratio without speculative instability. The results demonstrate that Tokyo’s recent housing-price increase is not a transitory bubble but a structural equilibrium generated by low interest rates, adaptive expectations, and urban-growth-driven optimism. This integrated framework—linking theory, dynamic estimation (VECM), static simulation, and structural extensions—provides a coherent foundation for understanding structural appreciation in global metropolitan housing markets.