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. 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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.