In this paper, we examine the determinants of house purchase plan and saving of young renters in Korea with a special emphasis placed on the discouragement effects of housing price. Based on intertemporal utility maximization framework, we discuss how the downpayment constraint influences a household’s decisions for saving and future tenure choice, and empirical models are estimated using cross-sectional data in 2006 and 2014.
Estimation results show that a higher housing price lowers both the probability of having house purchase plan and the amount of saving of young renters in both years. While the former result can be regarded as discouragement effect of housing price, we argue that the second result may not necessarily be the discouragement effect: The lower saving of young renters in areas with higher housing price can be due to higher wealth already accumulated in terms of pure Chonsei or mixed Chonsei deposits, which are highly and positively correlated with housing price. Those young renters who have large deposits are not downpayment-constrained and thus can be better off by saving less and consume more in the present.
Estimation results also indicate that young renter’s marital status and employment conditions are important determinants of house purchase plan and the effects of those variables became more significant in 2014 than in 2006.