Homeownership, saving and financial wealth: a comparative and longitudinal analysis

Abstract

The finding that homeowners own more non-housing wealth than tenants is well known. We examine whether the higher financial wealth of owners can be partly explained with increases in saving when becoming a homeowner in two distinct institutional contexts. Using longitudinal data for the UK (British Household Panel Survey) and Germany (Socio-Economic Panel Study), we find that homeowners save more and are financially wealthier than tenants. However, when controlling for time-constant selection into homeownership, upon entering homeownership households reduce their probability to save in Germany and reduce their average saving rate in Germany and the UK. For Germany, there is some evidence that processes of homemaking (family formation and home improvement) lead to less saving. For the UK, we find no evidence that increasing home equity over time discourages saving. Finally, tenants do not compensate for their lack of housing wealth by accumulating more non-housing wealth over time. This disadvantage for tenants seems more pronounced in the UK compared to Germany.