Factors to the boom and bust of Japan’s real estate market for the past half century

Purpose From the 1970s to 2020, Japan’s real estate market experienced key events such as the Plaza Accord, the Lost Decade, Abenomics and the COVID-19 pandemic, all of which significantly shaped the market’s cycles of boom and bust. In this context, the study aims to examine the factors that have influenced fluctuations in Japan’s residential real estate market over the past five decades. Design/methodology/approach This study uses the Auto-Regressive Distributed Lag model for empirical analysis. Data from three major cities-Tokyo, Osaka and Nagoya are collected for comparison. The model’s robustness was further validated through out-of-sample predictions from 2021 Q1 to 2023 Q1, by comparing forecasted housing prices with actual observed prices during the same period. Findings The empirical analysis of the three cities reveals distinct market dynamics. All three markets highlight the significance of past pricing trends in forecasting future market behavior. Housing prices in Tokyo exhibit a momentum effect and a cyclical correction pattern, showing high responsiveness to changes in the stock market but less sensitivity to economic indicators such as money supply and Gross Domestic Product. Osaka’s market shows a momentum effect similar to Tokyo’s, influenced by liquidity and the relationship between economic health and housing prices. Nagoya’s housing market also reflects the influence of historical trends and is significantly affected by interest rates. Originality/value The results provide investors and policymakers with valuable insights and highlight the close relationships between housing market cycles, the economy and the financial market. This study serves as a crucial guide for understanding and responding effectively to the evolving landscape of Japan’s urban real estate sector.