The Collective Action Problem in Japanese Condominium Reconstruction

Abstract

Condominium reconstruction involves a difficult collective decision-making process among owners, which prevents older condominiums from being redeveloped efficiently. This paper aims to examine whether this type of collective action cost exists for Japanese condominiums. First, we discuss in the literature review and an empirical analysis that the number of units in a condominium complex is an appropriate proxy for the collective action problem. Then, by using the rent in the price function to control for housing characteristics, we show that the number of units has a negative impact on condominium price. Furthermore, the price function for condominiums is compared with that for single-owner rental apartments that are free from the collective action problem. The estimation results show that the number of units only negatively affects the price of condominiums and that the depreciation rate for the condominium price is greater than that for single-owner apartments. This finding is consistent with the hypothesis that a significant cost is associated with collective action problems in condominium reconstruction. Lastly, we conduct a comparative examination of condominiums in Japan and the United States, and the result suggests that revising the current Japanese condominium law could induce more efficient redevelopment of old condominiums.
 

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Keywords

Condominium, Rental Apartment; Hedonic; Holdout; Collective Action; Development

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