Structure Depreciation and the Production of Real Estate Services

Jiro Yoshida

No 44, HIT-REFINED Working Paper Series from Institute of Economic Research, Hitotsubashi University

Abstract: This study simultaneously analyzes the real estate production function and economic depreciation of structures by using data from Japan and the U.S. The estimated share of structure value is used to infer returns to scale, the land-structure substitution, and the structure depreciation rate. Real estate exhibits approximately constant returns in Japan, but decreasing returns in the U.S. Land and structures are substitutes in both countries. The land value ratio is 10% in Centre County, PA, but 60%-70% in Japan, reflecting the scarcity of land. The property depreciation rate is larger for newer and denser properties located further away from the downtown area in a smaller city. The property depreciation rate is smaller than the structure depreciation rate due to the effect of land and a survivorship bias. The bias-corrected structure depreciation rates significantly vary by property type and country: approximately 7% for residential properties and 10% for commercial properties in Japan in contrast with 1% for residential structures in the U.S. The median life-span of structures is 30-35 years for residential and 20-30 years for commercial properties in Japan.

Keywords: capital consumption; returns to scale; elasticity of substitution; housing; commercial real estate; hedonic analysis; survivorship bias; demolition; Japan; USA (search for similar items in EconPapers)
JEL-codes: D24 E23 R32 (search for similar items in EconPapers)
Pages: 50 pages
Date: 2016-03
New Economics Papers: this item is included in nep-acc, nep-mac and nep-ure
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Citations: View citations in EconPapers (15)

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