H O W C

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10 September 2014
Do Homeowners Save
More? A Longitudinal
Analysis for the UK and
Germany
HOWCOME
No. 6
Changing Housing Regimes and
Trends in Social and Economic Inequality
HOWCOME Working Paper Series
Philipp M. Lersch
University of Cologne,
Institute of Sociology and Social Psychology
www.tilburguniversity.edu/howcome
Funded by the
European Research Council
Grant Agreement No. 283615
Do Homeowners Save More? A
Longitudinal Analysis for the UK and
Germany
Philipp M. Lersch1
Abstract: Homeowners have been found to be wealthier than tenants even when only
considering non-housing wealth in previous research. This may indicate that homeownership
is a driver rather than only a result of economic inequalities. Owners’ wealth advantages may
result from changes in households’ active saving when they enter homeownership. This
“tenure effect” is scrutinised in the present study in two diverse contexts using longitudinal
data for the UK (British Household Panel Survey, 1991-2008) and Germany (SocioEconomic Panel Study, 1992-2012). The results show that owners save more than tenants, but
this is mostly due to selection. Focussing on within-household changes, it is found that
British households save less when entering homeownership. German households increase
their saving before entering homeownership, but save less once they entered. Thus,
disparities in non-housing wealth between owners and tenants are mainly due to inequalities
preceding entry into homeownership.
Keywords: Cross-National Comparison; Homeownership; Saving; Wealth
Acknowledgements: This research is funded by the European Research Council
(HOWCOME, Grant Agreement No. 283615, directed by Caroline
Dewilde). An earlier version of the manuscript was presented at the
SOEP User Conference 2014.
1
University of Cologne, Institute of Sociology and Social Psychology, Greinstr. 2, 50939 Cologne, Germany;
Email: [email protected]
1. Introduction
Wealth is an important dimension of social stratification and provides individuals with
substantial advantages in their lives. Homeowners have more wealth than tenants, on average,
even when controlling for other aspects of their economic position, e.g. their labour incomes
(Di et al., 2007; Grinstein-Weiss et al., 2013; Turner and Luea, 2009). This suggests that a
“tenure effect” facilitates wealth accumulation for owners compared to tenants which leads to
more life chances for owners – and subsequently for their children (Dorling, 2014). This
tenure effect has been a recurrent topic in social research over the last decades (Burbidge,
2000; Hamnett, 1999; Saunders, 1990; Thorns, 1981; Watt, 1996). The underlying question is
the following: Is homeownership merely a product and indication of social inequalities
generated elsewhere, e.g. in the labour market, or does homeownership in itself contribute
independently to social inequalities and, thereby, may create “housing classes” (Rex and
Moore, 1967: 274)? This question is relevant for the revived debate on how to define classes
that followed the work of Savage et al. (2013). In the debate, wealth, including home equity,
has been highlighted unanimously as a constituting element of class (Dorling, 2014; Mills,
2014). Empirical investigations, however, on how housing may not simply be an indicator of
class but may contribute to class formation are few and far between.
Previously, house price inflation has been suggested as the main channel by which
some homeowners may accrue wealth beyond their original means generating new
inequalities (Hamnett, 1999). Findings are inconclusive, though. While some studies find
house price gains to reduce inequalities generated in the labour market (Thorns, 1981), other
research finds house price gains to be more likely for those already in favourable labour
market positions (Burbidge, 2000). Furthermore, while house price gains can be immense in
times of housing market upsurges, they are virtual as long as homeowners do not release
equity or sell their homes. House price falls may quickly diminish any capital gains
(Hamnett, 1999: 101ff).
In addition, house price gains alone can only partially account for the observed wealth
inequalities as homeowners are also found to have more non-housing wealth compared to
tenants (Di et al., 2007; Grinstein-Weiss et al., 2013). One alternative explanation, on which
this study focuses, is that households may change their active saving behaviour, i.e. the
money that they actively put aside at the end of the month, once they enter homeownership.1
Saving is one of the main sources of wealth accumulation (Ruel and Hauser, 2013). This
explanation has received little attention as yet, but initial evidence supports the idea that
differences in saving may be a potential cause for wealth inequalities between tenants and
owners (Fisher and Montalto, 2010; Turner and Luea, 2009), which may then contribute to
class formation. However, higher non-housing wealth of homeowners found in existing
research may be at least partly due to selection into homeownership of households that save
more. For example, a particular class background may be positively associated with being a
homeowner and saving money. This motivates the use of longitudinal data in the present
analysis which allows comparing the saving behaviour of the same households before and
after entering homeownership so that selection on time-constant characteristics does not
affect the empirical results.
To thoroughly derive the expectations regarding the effects of homeownership on
saving, a sociological life course perspective is applied. The life course perspective highlights
institutional embeddedness; homeownership and saving over the life course are also subject
to such contextual conditions (Börsch-Supan and Lusardi, 2003). To explore whether similar
tenure effects can be observed in divergent contexts, Germany and the UK are compared in
the present analysis. Households in Germany are among those with the highest saving rates,
while households in the UK are among those with the lowest saving rates in Europe. The
differences can, for example, be explained with easier access to credit in the UK (Leetmaa et
al., 2009). These and further institutional differences between both countries will be further
elaborated on in the following after the theoretical background has been discussed.
2. Theoretical background
2.1
A sociological life course model of saving
Sociological theory and empirical studies on saving are scarce. Acknowledging and
incorporating economic explanations for saving such as the life cycle model, a sociological
life course model of saving can be developed.2 This perspective adds to existing models that
individuals’ willingness to save and their opportunities to save are moulded by their life
courses which are embedded in social structures (Knoll et a., 2012). Individuals creatively
shape their life courses by acting forward-looking and following certain life goals within the
structurally given conditions (Anderson et al., 2005). Individuals’ life courses are contingent,
i.e. unforeseen events may affect life courses at any time. In addition, individuals have
limited resources, e.g. time and money, which restrict their agency and these resources
change through predictable as well as unforeseen events (Börsch-Supan and Lusardi, 2003).
Because of these characteristics of life courses, saving can be understood as intertemporal transfers of resources over individuals’ life courses with mainly three functions: (1)
to accumulate a buffer stock of resources to secure future agency given the contingency of
life courses; (2) to accumulate resources for (relatively) expectable income losses; and (3) to
accumulate sufficient resources for concrete future life goals, e.g. saving for a down payment
to buy a home. Individuals can be expected to coordinate their saving within their
households. Therefore, in the following, the household will be the unit of discussion and
analysis.3
The ability and necessity to save are socially structured. First, saving is highly
dependent on the current economic resources available to households. Only sufficient
resources will enable households to set aside part of their resources for future use. Second,
life course contingencies and risks which necessitate, but may also inhibit, saving are socially
structured and context-specific. In addition, welfare regimes influence the economic
consequences of these events. Thus, the necessity for private savings to mitigate life course
risks varies widely across welfare regimes (Börsch-Supan and Lusardi, 2003; DiPrete, 2002).
Also, the institutional opportunities and constraints for saving may affect households, e.g. in
the form of matched saving plans in which savers’ contributions are topped up with public
funds (Beverly and Sherraden, 1999). Third, saving money and foregoing current
consumption is more likely for future-oriented households that have a relative long planning
horizon (Ersner-Hershfield et al., 2009). Households without such long-term plans may have
little motivation and ability to set aside resources for later use. It has been previously argued
that higher class positions are associated with longer planning horizons, because in these
positions life courses are less volatile (Anderson et al., 2005; Sørensen, 1999).
2.2
Entering homeownership and saving
Homeownership is an important life goal for many individuals (Anderson et al., 2005).
Because homeownership is a large investment, most homeowners purchase their homes with
mortgages. Based on the life course model of saving, households may reduce as well as
increase their saving after entering homeownership with mortgages, which leads to two sets
of competing hypotheses.
On the one hand, once households have entered homeownership their original
motivation to save may cease to apply. In addition, mortgage repayments are at least partly
forced savings as households pay down the principal and, thereby, increase their home equity.
Even though households may not consider these increases in home equity as fully fungible
with monetary savings, they may still reduce the amount of money that they save in addition
to their mortgage repayments (Skinner, 1996). In addition, households have limited
resources. Once they entered homeownership they may need to reallocate at least some of the
money previously saved to meet mortgage repayments if these payments exceed previous rent
payments. Also, after having bought a home, additional expenses, e.g. for repairs or
refurbishing, may burden households’ budgets and reduce saving. If such reductions in saving
occur when households enter homeownership, this would indicate that homeownership does
not generate additional inequalities through higher savings for owners. In this case, a
potential tenure effect on wealth is likely due to increases in home equity alone, which may
have only a limited impact on durable inequalities as described above. The following
hypotheses are formulated separately with respect to the probability of saving at all and with
respect to the saving rate, i.e. the share of the monthly income that is saved.
H1a After entering homeownership with mortgage, households are less likely to save
compared to being tenants.
H1b After entering homeownership with mortgage, households reduce their saving rate
compared to being tenants, conditional on saving at all.
On the other hand, it can also be expected that households save more after entering
homeownership compared to the time before entering. This would be evidence for a positive
tenure effect on saving and would show that homeownership may cause additional
inequalities. First, this may be because unlike most other financial investments of private
households, homeownership is a depreciating asset. Abstracting from general house price
developments, homeowners need to constantly re-invest in their homes to maintain (or
increase) the value of their initial investments (Tegeder and Helbrecht, 2007). While
homeowners may save to meet the maintenance costs of their homes and may spend these
savings eventually, in the meantime they earn interest and could also use their savings in
cases of emergencies.
Homeowners may also be likely to create saving buffers to secure their mortgage
repayments against the life course risk of income loss. While public and private insurances
are available to protect mortgagees against some types of income losses in a number of
countries, the effectiveness of these measures varies widely leaving many homeowners
under-protected (Pryce and Keoghan, 2002). While tenants are also at risk of losing their
incomes, they can more flexibly adjust their housing to reduce costs. An additional life course
risk for homeowners that is not faced by tenants in the same way is house price volatility
(Percoco, 2014). To secure their future agency, homeowners may want to hold additional
non-housing savings to diversify their investments and to offset potential losses in the
housing market.
Furthermore, household members’ decisions to save are affected by past experiences in
their life courses (Beverly and Sherraden, 1999). In preparation of buying their homes, many
households reduce their consumption and increase their saving to be able to make the
necessary down payments. Once household members got used to this ascetic behaviour, it
may be continued even after having entered homeownership. Having experienced the
successful pursue of a life goal through saving may also stimulate further saving after
entering homeownership.
Finally, homeownership may not only directly affect attitudes towards saving, but may
also have a more general effect on household members’ planning of their life courses
(Toussaint et al., 2007). Homeownership is a long-term commitment which may
systematically extent the planning horizon of household members. A similar argument has
been previously made regarding the positive effect of marriage on saving. Marriage is also a
long-term commitment that extends individuals’ planning horizons (Knoll et al., 2012). Based
on these arguments, the following hypotheses about a positive effect of homeownership on
saving are formulated in contrast to hypotheses H1a and H1b:
H2a: After entering homeownership with mortgage, households save more often
compared to being tenants.
H2b: After entering homeownership with mortgage, households increase their saving
rate compared to being tenants, conditional on saving at all.
3. Homeownership and saving in Germany and the UK
The contextual conditions for saving diverge in Germany and the UK and this may
affect how entering homeownership changes saving. In 2012, the gross household saving
rate, i.e. the share of the national gross income not consumed, in Germany was about 16%,
more than twice as large as in the UK (7%). The relatively low saving rates in the UK can
partly be explained with more developed credit markets which allow individuals to finance
their consumption out of credit (Leetmaa et al., 2009). Börsch-Supan and Lusardi (2003)
argue that regulated access to mortgages in Germany is one of the main reasons for high
saving rates despite a generous pension system. Additionally, returns from investments in
homeownership in Germany are modest compared to the UK between 1995 and 2012 (Figure
1). Whereas increases in home equity due to price inflation in the UK may have reduced
additional savings, such increases in home equity did not occur in Germany. Tax incentives
and subsidies additionally favour saving in Germany, e.g. through building society saving
plans (Börsch-Supan et al., 2003).
–Figure 1 about here–
The less regulated credit market with relatively easy access to mortgages is an
important component of the British housing market in which homeownership is the major
tenure (Figure 1). Van der Heijden et al. (2011) use the dichotomy of dynamic and static
markets to characterise West-European housing markets. The UK and Germany are clear
representatives of these ideal types, respectively. Dynamic markets such as in the UK are
characterised by relatively high residential mobility of homeowners who trade up and down
over their life courses making extensive use of highly developed (and occasionally risky)
mortgage products. Dwellings are perceived as investments that can be sold on. Mortgages
can be re-paid early without high penalties and mortgage interest rates are mostly fixed only
for short terms.
In static housing markets such as in Germany, homeowners are less mobile compared
to dynamic markets. Homeownership is an once-in-a-lifetime investment for most households
in Germany. Down payments are relatively high due to stringent mortgage regulations.
Households need to save for a considerable time to be able to make a down payment. Public
subsidies for owners are mostly granted only once for individuals. In addition, attractive
alternatives in the rental sector are available in Germany, which makes homeownership less
popular than in the UK (Figure 1). Further particularities in the German market are high
transaction costs, penalties for early repayment of mortgages and long-time fixed interest
rates, which make repeated home purchases less attractive than in the UK (Voigtländer,
2009).
Public welfare protection of homeowners is stronger in Germany than in the UK. For
example, replacement rates of general unemployment benefits are higher in Germany
compared to the UK, at least for those previously in continuous employment (McGinnity,
2004: 12). Thus, British homeowners need to build up private buffer savings for income
losses more than German homeowners do. This is also true regarding income losses after
retirement. In Germany, a public, universal pension system offers relatively generous
retirement incomes which are closely linked to previous labour earnings. Accumulation of
private pension wealth has gained more popularity due to reforms of the German pension
system since the early 2000s, but is still less popular than in the UK. The generous pension
system does not crowd out private saving for other reasons, however (Börsch-Supan et al.,
2003). In the UK, public pensions are rudimentary and are often supplemented with privately
accumulated (employer) pensions (Fasang, 2012). In the context of weak public pension
systems, home equity release has gained popularity in the UK (Ong et al., 2013). Thus,
households in the UK are more likely to rely on their home equity to transfer resources for
future use than German households. At the same time, because of higher house price
volatility, homeownership as a financial safety net for retirement age is more risky in the UK
than in Germany.4 The following cross-national hypotheses are formulated, which should be
treated as exploratory:
H3: Before entering homeownership, prospective German homeowners increase their
saving more compared to prospective homeowners in the UK (because of high down
payments).
H4: After entering homeownership with mortgage, British households save more
relative to being tenants compared to German households (because of weaker public welfare
protection and more risks in the housing market).
4. Method
4.1
Data and sample
Longitudinal data from two national, multi-purpose household panel surveys are used
separately to test the hypotheses. For the UK, the British Household Panel Survey (BHPS) is
used that is run by the Economic and Social Research Council UK Longitudinal Studies
Centre with the Institute for Social and Economic Research at the University of Essex and
started in 1991. The low-income ECHP-subsamples are excluded from the analysis. All
waves between 1991 and 2008 are used. For more details regarding the data see Taylor et al.
(2010). For Germany, the Socio-Economic Panel Study (SOEP), which was established in
1984 and is run by the German Institute for Economic Research in Berlin, is used. The highincome sample G, the innovation sample I and the latest refreshment sample K from 2012 are
excluded for the present study. All waves between 1992 and 2012 are used. Before 1992, the
amount of monthly saving has not been recorded in the SOEP. For more details regarding the
data see Wagner et al. (2007).
Households are the unit of analysis. The household heads are selected for the analytic
sample and information regarding other household members is matched to these
respondents.5 Respondents below the age of 18 and above the age of 59 are excluded from
the analysis. The latter are excluded, because retired people are more likely to dissave which
may distort the results. The estimation sample is an unbalanced panel and includes 60,737
household-year observations from 8,989 households from the BHPS and 97,315 householdyear observations from 13,814 households from the SOEP.
4.2
Measures
Two related response variables, which are measured at the household level, are
analysed (for summary statistics see Table 1). Saver status measures whether the household
saves any money in a regular month (coded 1) or not (coded 0). For those households that
save money, saving rate is a bounded, continuous variable measuring the share of
households’ net incomes that is saved in a regular month. The response variables measure
active saving, i.e. the amount intentionally put aside each month. Passive saving, e.g. in the
form of increased home equity due to appreciating house prices, dissaving and take up of
credit are not considered in the present analysis (see endnote 1).
–Table 1 about here–
The main explanatory variable is the dummy homeownership with mortgage. It is
additionally controlled for outright homeownership, so that households in privately rented
accommodation, social housing and other types of accommodation are the reference category
and referred to as tenants hereafter.
In the multivariate analysis, the following time-varying variables are controlled for:
household income (log) which is the annual, net household income (equivalised with the
modified OECD-scale, in constant-prices of 2006, converted to purchasing power parity
(PPP-) $ and log-transformed); monthly housing costs (in 100 PPP-$), i.e. rent and mortgage
payments; age as linear and quadratic terms; cohabitation and married (ref. single); underage
child (-ren) living in household; one wage earner in household and two or more wage
earners in household (ref. no wage earner in household); and university degree. The
following time-constant characteristics of the household head are controlled for: women; and
born abroad. In all multivariate models, period dummies, dummies for different subsamples
and an indicator for all observations after respondents left homeownership within the
observation period are included but not reported.
4.3
Choice of models
The choice of the empirical models is motivated by two issues. First, saving is the result
of two interrelated decisions: the decision to save at all (occurrence); and the decision how
much to save conditional on saving at all (intensity). Because of the two related decisions it is
sensible to model saving in two simultaneous parts. For the present study, the first part is a
probit model for the occurrence of positive saving values, i.e. the response variable is saver
status. The second part is a linear regression model of the logit-transformed saving rate
which predicts the conditional mean of the saving rate for households that save at all.6 Both
parts of the model include household-specific random effects to account for the dependence
among households’ repeated observations. Because it can be assumed that time-constant
unobserved heterogeneity affects both processes simultaneously and to exploit this additional
information for the estimation of the model, the random effects are allowed to be correlated
and drawn from a joint normal distribution (Olsen and Schafer, 2001). The system of
equations is estimated in Stata 13.1 using the user-written cmp routine (Roodman, 2011).
Second, saving and homeownership may be simultaneously affected by unobserved
third variables (Knoll et al., 2012). For example, a particular class background may be
associated with an unobserved predisposition towards security and independence that
positively influences the probability to save and may at the same time positively influence the
transition to homeownership. To retrieve coefficients that are less affected by such selection
on time-constant unobserved characteristics and to exploit the longitudinal dimension of the
panel data, hybrid panel models are estimated (Allison, 2009: 23ff). The basic idea of these
hybrid models is to include time-variant variables in two forms in the regression: 1) as the
deviation from the subject-specific mean over time, i.e. for each period the subject-specific
mean is subtracted from the observed value of a time-varying variable (within-effects,
indicated by “W:” in the regression tables); and 2) as the subject-specific, time-constant mean
(between-effects, indicated by “B:”). While time-constant characteristics of subjects are
absorbed by the between-effects, the within-effects allow relating changes in the response
variables to changes in the explanatory variables. Time-constant variables are included as
they are. As the present analysis is foremost interested in changes in the saving behaviour
when entering homeownership, the within-effects are mainly discussed.
5. Analysis
5.1
Average changes in saving when entering homeownership
Figure 2 shows the average share of households that save three years before and after
making the transition from rented accommodation into homeownership with mortgage.
Almost three out of four German household save before entering homeownership. With the
transition into homeownership with mortgage, the rate of saving households drops
significantly. Only about 60% of German homeowners with mortgage save in the year after
entering homeownership. The share of savers increases again over the subsequent years, but
remains below the pre-homeownership share. Not only the share of households that save but
also the saving rate is significantly reduced after entering homeownership with mortgage in
Germany and the saving rate does not increase again over the subsequent two years.
In the UK, changes in saving show a very different pattern. The share of savers is
considerably lower than in Germany. After the transition into homeownership with mortgage,
no significant change in the share of savers is observed. Overall, in the examined time
window the share of savers shows a slight increase, but these differences are non-significant.
The average saving rate, conditional on saving, decreases significantly after households enter
homeownership with mortgage, however. Thus, while about as many households save in the
UK after entering homeownership compared to before entering, they save less of their
household income on average – at least in the first three years after the transition.
–Figure 2 about here–
5.2
Are homeowners more likely to save?
Table 2 shows the estimation results of the two-part random-effects model for Britain
and Germany. Specification 1 tests the within- and between-effects of homeownership with
mortgage and outright homeownership only controlling for period, subsample and having left
homeownership previously (these controls are not reported). Specification 2 includes the full
range of control variables. The saver status and the saving rate are modelled simultaneously.
Allowing the random effects to be correlated across equations significantly increases model
fit (for the UK: χ2 (2) = 449.25, p = 0.000; for Germany: χ2 (2) = 874.96, p = 0.000). The
cross-equation correlation of random effects is highly significant in both countries and for all
models. Thus, time-constant unobserved characteristics of households that positively affect
the probability to save in a given period also influence the saving rate positively. Comparing
the coefficients of interest, i.e. for homeownership with mortgage, from this simultaneous
estimation to separate estimations leads to substantially similar results (see Table 4 in the
appendix). Due to the superior model fit and significant cross-equation correlation, the
following discussion concentrates on the simultaneously estimated models with correlated
random effects.
The effects of homeownership on the probability to save are considered first. In the
UK, a household entering homeownership with mortgage from rental accommodation is not
more likely to save once controlled for covariates such as income, housing costs and family
status. Without controlling for the additional covariates, households are significantly more
likely to save after entering homeownership with mortgage. These results support neither H1a
about a negative effect of entering homeownership with mortgage on the probability to save
nor the competing H2a about a positive effect of entering homeownership with mortgage.
The transition into homeownership with mortgage does not have a substantial effect on the
saver status in the UK.
The between-effect of homeownership with mortgage on the probability to save is well
estimated and positive. Thus, households that are in homeownership with mortgage are more
likely to save compared to other tenant households which indicates selection of households
that are more likely to save into homeownership. This is a recurrent finding in the present
analysis. In supplementary analyses which are available upon request, it was analysed
whether respondents’ class positions – measured with the Erikson-Goldthorpe-Portocarero
class scheme – or respondents’ parents’ positions may help differentiating between non-saver
households and saver households that additionally accumulate housing wealth. While overall
higher class positions were associated with more saving, class does not explain away the
between-household differences in saving between homeowners and tenants.
For Germany, the results show a slightly different picture. Homeownership with
mortgage has a negative within-effect on the probability to save in Germany even after
controlling for all other covariates. This is a confirmation of the descriptive results presented
earlier. At the same time, a positive between-effect of homeownership with mortgage is
found. Thus, while households in homeownership with mortgage are more likely to save than
other tenant households, on average, the same household entering homeownership with
mortgage from rented accommodation is less likely to save. This is in accordance with H1a
and rejects the competing H2b.
For outright homeownership, no significant within-effect is found for the UK, while
German households reduce their chances to save if they enter outright homeownership
compared to being tenants. In both countries, the within-effects indicate that households are
more likely to save if they have a higher income, have lower housing costs, and have at least
one wage earner in the household. In Germany, having a child, being married and attaining
higher education is positively associated with the probability to save.
–Table 2 about here–
5.3
Do homeowners save more from their income?
The second part of the models estimates the effects of homeownership on the saving
rate, i.e. the amount households save conditional on saving at all. For the UK, entering
homeownership with mortgage has a significant and negative effect. The same household
reduces its saving rate by about 14% ([e −0.15 − 1] * 100) when entering homeownership with
mortgage from rented accommodation. This finding is in accordance with H1b about the
negative effect of homeownership with mortgage on the saving rate and rejects H2b about a
positive effect of homeownership with mortgage. Again, the between effect indicates
significant differences between homeowners with mortgage and tenants with the former
saving more.
In Germany, entering homeownership with mortgage reduces the average saving rate
by about 16% ([e −0.17 − 1] * 100) compared to the same household in rented accommodation.
This is support for H1b and rejects H2b for Germany. The between-effect for homeownership
with mortgage is not significant in Germany. This suggests that while households that save at
all select into homeownership with mortgage, these owners are not systematically different
from other households regarding their average saving rate.
Households in outright homeownership do not save significantly more than when being
in rented accommodation in both countries. The average saving rate conditional on saving at
all increases with lower housing costs and with a higher number of earners in the household
(withim-effects). In the UK, a higher income and underage children in the household reduce
the saving rate. In Germany, a higher income and university degree increase the saving rate.
Entering cohabitation reduces the saving rate. For the observed age range, the average saving
rate in Germany follows an inverse u-shape with a minimum at about age 50.
5.4
Cross-country differences in saving and homeownership
The cross-country hypotheses are discussed now, keeping in mind that the results
provide only exploratory evidence regarding differences between the UK and Germany. H3
stated that before entering homeownership, prospective German homeowners increase their
saving more compared to prospective homeowners in the UK. This expectation is tested by
extending the previously reported models with lead indicators of the entry to homeownership
with mortgage (Table 3). For example the within-effect of t+3 indicates the change in saving
three years before the household enters homeownership with mortgage. These coefficients
should be treated as descriptively due to the endogeneity of past saving and current
homeownership. No significant changes in the saver status or the saving rate before entering
homeownership with mortgage can be observed in the UK. In Germany, households
significantly increase their saving rate in the last year before entering homeownership, but are
not more likely to save. Thus, weak evidence in favour of H3 is found.
–Table 3 about here–
In H4, it was expected that after entering homeownership with mortgage British
households save more relative to being tenants compared to German households. The results
also partly support this hypothesis. Whereas British tenants are not less likely to save once
they enter homeownership with mortgage, German tenants that enter homeownership with
mortgage are less likely to save (see Table 2). Conditional on saving at all, German and
British households reduce their saving rate both by about 16 and 14%, respectively.
6. Conclusion
The present study uses longitudinal data to investigate whether households change their
saving behaviour once they enter homeownership due to a “tenure effect” in the UK and
Germany. These changes are tested because they may explain why homeowners have been
found to have higher net worth than tenants when controlling for their socio-economic
position and even when only considering non-housing wealth. Overall, the results show that
the higher probability to save among homeowners seems to be largely due to selection
effects. Those households which are more likely to save – irrespective of the saving rate – are
more likely to be in homeownership. In contrast to the expectations about a positive tenure
effect, it is found that households that enter homeownership with mortgages reduce their
probability to save in Germany and reduce their average saving rate in Germany and the UK.
As hypothesised, the results for Germany differ from the UK. On the one hand, strong
selection effects are also found for the former context. On the other hand, the results for
Germany indicate that homeownership seems to have a more direct effect on saving
compared to the UK. German, prospective homeowners substantially increase their saving
rate before entering homeownership. This can be interpreted as goal-oriented saving towards
homeownership which is important to gain access to mortgages in the German context. Once
German households enter homeownership with mortgage, they are less likely to save than
British homeowners.
The results have implications for the question whether homeownership is merely a
consequence of economic inequalities or independently contributes to these inequalities.
Overall, the evidence for an independent tenure effect on active saving is limited and at best
indicates a reduction in saving after entering homeownership. This suggests that selection
rather than causation drives the higher non-housing wealth among homeowners compared to
tenants found in earlier studies. The vital point that this study aims to establish then is that
because of the selection of savers into homeownership, households that accumulate nonhousing wealth additionally accumulate housing wealth. Over the life course, the
accumulated wealth for owners leads to aggravated economic inequalities between owners
and tenants, but this is not directly caused by their tenure status. In this regard,
homeownership does not independently contribute to class formation through accelerated
accumulation of non-housing wealth. However, previous gains in housing wealth may also be
transferred to non-housing wealth, e.g. through equity release, which may link tenure and
non-housing wealth in a way that could not be tested in the present analysis.
Additional research is also needed to understand the differences between non-saver
households and saver households that additionally accumulate housing wealth. While it may
be hypothesised that class position differentiates between these groups, supplementary
analyses do not provide sufficient evidence in this regard. However, more detailed research in
this direction is necessary. Further, it is not possible to consider the amount that homeowners
with mortgage pay towards the principal in the present data. It would be relevant to consider
this forced saving in future research to examine how active saving adds to the amount saved
by forced saving.
Notwithstanding these limitations and open questions, the present study provides a
thorough analysis of the effects of homeownership on active saving as one major channel of
wealth accumulation. It shows how inequalities between life courses of homeowners and
tenants exist in divergent institutional contexts. In doing so, the analysis adds important
insights about the generation of wealth inequalities which continue to shape the social
structure of present-day societies. The analysis shows that those accumulating housing wealth
are also likely to accumulate non-housing wealth. Inequalities in non-housing wealth between
owners and tenants can be traced to differences between these groups that precede the entry
to homeownership. To identify these differences is an important step for future research.
7. Appendix
–Table 4 about here–
8. Endnotes
1
Price appreciation is a form of “passive saving” if the higher net home equity is not
consumed. Economic literature has dealt with the effects of price changes on
consumption and saving (e.g. Campbell and Cocco, 2007). In this study, the amount of
home equity and passive saving is not considered in detail and instead the
homeownership status and its effect on active saving are examined.
2
For an overview of economic models of saving regarding homeownership see Turner and
Luea (2009).
3
Potential conflicts between household members regarding saving decisions are left for
future research.
4
However, in Germany no reversed mortgages are available which could be used to easily
liquefy home equity. Thus, Germans could also be more likely to accumulate nonhousing savings while British homeowners can draw more easily from their home
equity in case of emergencies.
5
In the BHPS, the head of household is the principal owner or renter of the accommodation.
When there is more than one owner or renter, a male and older person takes
precedence. In the SOEP, the head of household is the person most knowledgeable
about a household’s situation.
6
The response variable saving rate is bounded between 0 and 1. Therefore, a logit
transformation is used which makes the variable approximately normal distributed.
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10. Tables and Figures
Figure 1: Annual real house price changes and homeownership rate in Germany and the
United Kingdom (1995-2012)
Data: OECD Economic Outlook, Eurostat
Table 1: Descriptive statistics by country
UK
M
SD
MIN
MAX
M
Germany
SD
MIN
MAX
Saver status
0.55
0.50
0.00
1.00
0.61
0.49
0.00
1.00
Saving rate
0.10
0.10
0.00
1.00
0.14
0.11
0.00
1.00
Tenant
0.28
0.45
0.00
1.00
0.61
0.49
0.00
1.00
Homeownership with mortgage
0.60
0.49
0.00
1.00
0.27
0.45
0.00
1.00
Outright homeownership
0.12
0.33
0.00
1.00
0.12
0.32
0.00
1.00
HH income (log)
Monthly housing costs (100 PPP-$)
Age
7.54
4.59
40.29
0.73
4.73
10.37
-3.21
0.00
18.00
11.63
257.51
59.00
7.69
5.01
41.22
0.62
4.18
10.17
1.94
0.00
18.00
11.76
131.64
59.00
Age²/100
17.30
8.43
3.24
34.81
18.03
8.40
3.24
34.81
0.31
0.46
0.00
1.00
0.26
0.44
0.00
1.00
Cohabitation
0.14
0.35
0.00
1.00
0.12
0.32
0.00
1.00
Married
0.54
0.50
0.00
1.00
0.62
0.49
0.00
1.00
Underage children
0.50
0.50
0.00
1.00
0.45
0.50
0.00
1.00
No wage earner
0.13
0.34
0.00
1.00
0.09
0.29
0.00
1.00
One wage earner
0.34
0.47
0.00
1.00
0.42
0.49
0.00
1.00
Two or more wage earners
0.53
0.50
0.00
1.00
0.49
0.50
0.00
1.00
Women
0.42
0.49
0.00
1.00
0.38
0.48
0.00
1.00
Born abroad
0.05
0.21
0.00
1.00
0.14
0.34
0.00
1.00
University degree
0.37
0.48
0.00
1.00
0.21
0.41
0.00
1.00
Single
Data: BHPS 1991-2008, SOEP v29 1992-2012 (unweighted)
Figure 2: Share of savers and saving rate when entering homeownership with mortgage
Data: BHPS 1991-2008, SOEP v29 1992-2012 (weighted)
Note: Whiskers indicate 95% confidence interval.
Table 2: Two-part random-effects model of saver status and saving rate
UK
Germany
Specification 1
Saver Status
Coeff.
Specification 2
Saving Rate
SE
Coeff.
SE
Saver Status
Coeff.
Specification 1
Saving Rate
SE
Coeff.
SE
Saver Status
Coeff.
Specification 2
Saving Rate
SE
Coeff.
SE
Saver Status
Coeff.
Saving Rate
SE
Coeff.
SE
W: Homeownership with mortgage
0.20 *
0.08 -0.23 ***
0.06 -0.08
0.08 -0.15 *
0.06 -0.27 ***
0.07 -0.32 ***
0.03 -0.33 ***
0.09 -0.17 ***
0.04
B: Homeownership with mortgage
1.25 ***
0.04 0.25 ***
0.03 0.28 ***
0.04 0.09 **
0.03 0.64 ***
0.03 0.01
0.02 0.14 ***
0.04 0.02
0.02
W: Outright homeownership
0.13
0.11 -0.01
0.08 -0.10
0.11 -0.05
0.08 -0.08
0.10 -0.07
0.05 -0.28 **
0.11 -0.09
0.05
B: Outright homeownership
1.15 ***
0.06 0.73 ***
0.04 0.40 ***
0.06 0.57 ***
0.05 1.00 ***
0.05 0.59 ***
0.03 0.15 **
0.05 0.39 ***
0.03
0.04 0.31 ***
0.03
W: HH income (log)
0.34 ***
0.04 -0.16 ***
0.03
0.72 ***
B: HH income (log)
0.82 ***
0.03 0.16 ***
0.03
1.55 ***
0.03 0.68 ***
0.02
W: Monthly housing costs (100 PPP-$)
-0.01 **
0.00 -0.01 **
0.00
-0.04 ***
0.01 -0.03 ***
0.00
B: Monthly housing costs (100 PPP-$)
-0.04 ***
0.00 -0.02 ***
0.00
-0.10 ***
0.00 -0.04 ***
0.00
W: Age (years)
0.02
0.02 -0.00
0.02
0.01
0.02 -0.08 ***
0.01
B: Age (years)
-0.00
0.01 0.02
0.01
-0.10 ***
0.01 -0.06 ***
0.01
0.01
W: Age²/100
-0.01
0.03 0.01
0.02
0.00
0.03 0.08 ***
B: Age²/100
-0.00
0.01 -0.04 **
0.01
0.10 ***
0.01 0.05 ***
0.01
W: Cohabitation
0.07
0.08 -0.06
0.06
0.09
0.07 -0.10 *
0.04
B: Cohabitation
-0.23 ***
0.06 -0.18 ***
0.05
0.03
0.05 -0.14 ***
0.03
W: Married
0.09
0.08 -0.08
0.07
0.25 **
0.08 0.02
0.04
B: Married
0.19 ***
0.05 0.07
0.04
0.37 ***
0.04 -0.02
0.02
W: Underage children
0.09
0.06 -0.28 ***
0.05
0.13 *
0.06 -0.00
0.03
B: Underage children
-0.02
0.04 -0.41 ***
0.03
0.03
0.04 -0.14 ***
0.02
W: One wage earner
0.53 ***
0.07 0.24 ***
0.07
0.52 ***
0.06 0.10 *
0.04
B: One wage earner
0.58 ***
0.06 0.34 ***
0.06
0.28 ***
0.06 -0.17 ***
0.04
W: Two or more wage earners
0.92 ***
0.08 0.26 ***
0.07
0.76 ***
0.07 0.14 **
0.05
B: Two or more wage earners
1.11 ***
0.07 0.28 ***
0.06
0.36 ***
0.07 -0.18 ***
0.04
W: University degree
0.04
0.14 0.07
0.11
0.28
0.14 0.20 **
0.08
B: University degree
0.17 ***
0.03 0.08 **
0.02
0.32 ***
0.03 0.24 ***
0.02
Women
-0.07 *
0.03 -0.07 **
0.02
-0.02
0.03 -0.07 ***
0.01
Born abroad
-0.07
0.06 0.04
0.05
-0.13 **
0.05 0.09 **
0.03
0.09 -3.10 ***
0.08 0.38 ***
0.10 -2.29 ***
0.07
Constant
Household-year observations
-0.77 ***
0.07 -3.12 ***
60737
0.07 -0.88 ***
60737
0.09 -2.23 ***
97315
0.06 -0.38 ***
97315
Households
8989
8989
13814
13814
σ1
1.22 ***
0.96 ***
1.56 ***
1.13 ***
σ2
0.50 ***
0.47 ***
0.42 ***
0.35 ***
ρ12
0.38 ***
0.33 ***
0.46 ***
0.34 ***
df
81
125
105
149
155089.72
150757.18
226803.21
216351.49
AIC
Data: BHPS 1991-2008, SOEP v29 1992-2012 (unweighted)
Note: W indicates within-effect, B indicates between-effect; controlled for period, subsample and whether respondents left homeownership; ∗∗∗ =
p <0.001; ∗∗ = p <0.01; ∗ = p <0.05.
Table 3: Changes in saving before entering homeownership
UK
Saver Status
Germany
Saving Rate
Coeff.
SE
Saver Status
Coeff.
SE
Saving Rate
Coeff.
SE
Coeff.
SE
W: Homeownership with mortgage
-0.07
0.09 -0.15
0.08 -0.33 ***
0.09 -0.16 ***
0.05
B: Homeownership with mortgage
0.31 ***
0.05 0.11 *
0.04 0.16 ***
0.04 0.03
0.02
W: t+3
0.01
0.13 0.01
0.11 0.06
0.12 0.13 *
0.06
B: t+3
-0.19
0.35 0.33
0.30 0.46
0.47 0.47
0.26
W: t+2
-0.03
0.14 0.02
0.11 0.11
0.12 0.04
0.06
B: t+2
0.69
0.36 0.06
0.29 0.25
0.48 -0.21
0.26
W: t+1
-0.04
0.15 0.02
0.12 0.16
0.13 0.04
0.06
B: t+1
-0.52
0.32 0.06
0.27 0.53
0.37 0.29
0.19
Entry into Homeownership with mortgage in
Data: BHPS 1991-2008, SOEP v29 1992-2012 (unweighted)
Note: W indicates within-effect, B indicates between-effect; models include all covariates reported in Table 2; ∗∗∗ = p <0.001; ∗∗ = p <0.01; ∗ = p
<0.05.
Table 4: Separate random-effects models of saver status and saving rate
W: Homeownership with mortgage
B: Homeownership with mortgage
W: Outright homeownership
B: Outright homeownership
Household-year observations
Households
UK
Specification 1
Specification 2
Saver Status
Saving Rate
Saver Status
Saving Rate
Coeff.
SE
Coeff.
SE
Coeff.
SE
Coeff.
SE
0.20*** 0.04 -0.23*** 0.04 -0.08
0.05 -0.14*** 0.04
1.27*** 0.04 0.15*** 0.03 0.28*** 0.04 0.07*
0.03
0.13*
0.06 -0.00
0.05 -0.10
0.06 -0.04
0.05
1.16*** 0.06 0.67*** 0.04 0.41*** 0.06 0.55*** 0.05
60737
31981
60737
31981
8989
6609
8989
6609
Germany
Specification 1
Specification 2
Saver Status
Saving Rate
Saver Status
Saving Rate
Coeff.
SE
Coeff.
SE
Coeff.
SE
Coeff.
SE
-0.27*** 0.03 -0.31*** 0.02 -0.33*** 0.04 -0.16*** 0.02
0.64*** 0.04 -0.07*** 0.02 0.17*** 0.04 0.01
0.02
-0.07
0.05 -0.07** 0.02 -0.27*** 0.05 -0.08** 0.02
1.07*** 0.05 0.49*** 0.03 0.20**
0.07 0.37*** 0.03
97315
59226
97315
59226
13814
10901
13814
10901
Data: BHPS 1991-2008, SOEP v29 1992-2012 (unweighted)
Note: W indicates within-effect, B indicates between-effect; controlled for all other covariate reported in Table 2 and period, subsample and
whether respondents left homeownership; ∗∗∗ = p <0.001; ∗∗ = p <0.01; ∗ = p <0.05.
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