HOUSING PRICES AND THE SAVINGS OF RENTERS

This paper studies the effects of housing prices on the net worth of y oung households. Because prospective homeowners must accumulate down p ayments, a change in housing prices can change their saving patterns. Theoretically, the effect of increases in house prices on savings is a mbiguous, because households can increase their saving to afford the l arger down payment, or decrease their saving because they have chosen to delay or forego purchasing a house. Using data from the 1984 Panel Study of Income Dynamics [27], I show that empirically, the effect of increased housing prices on saving is positive, and quite large relati ve to the savings of young households. Young renter households living in cities with high housing prices have more net worth than those livi ng in cities with lower housing prices, controlling for both the incom e of the households, as well as the per capita income of the city in w hich they live. (C) 1995 Academic Press, Inc.