Housing costs, house price shocks and savings behaviour among older households in Britain

Abstract

Most households around retirement age hold much of their non-pension wealth in the form of housing. The paper uses a two wave panel to examine housing wealth and saving behaviour by the elderly in Britain between 1988 and 1994. It examines the response of households to house price shocks, and also to ‘excess’ housing costs relative to income. The results differ between non-movers and movers, and are corrected for the non-random nature of the moving decision. It finds a marginal propensity to save to offset the house price shock of 0.96 for movers, but an insignificant impact for non-movers. ‘Excess’ housing costs do not appear to influence the moving decision and are positively associated with saving, suggesting strong heterogeneity in tastes for overall asset holding.