Housing Contract and Household Saving Behavior: Evidence from Newlyweds

Abstract

Abstract The prices of housing, which have continued to rise, become great financial burdens for newlyweds. Specifically, housing prices can affect young adults’ consumption and saving behaviors. This study examines whether housing characteristics, especially residential housing contract types, affect newlyweds’ saving behavior in the early stages of their marriage. We focus on newlyweds who newly form households through their first marriage using the last twenty-year-long datasets, before the outbreak of the pandemic in Korea. Our empirical results based on the informative datasets show that the area of residence, number of children, household income, and financial statuses, such as assets and liabilities, affect newlyweds’ saving patterns. Homeownership, which is the main research variable in this study, has a positive effect on household savings considering the debt-to-income ratio. People who live in expensive houses have the potential to save large amounts. However, savings differ by housing contract type, even among households living in houses of similar value. These findings contribute to explaining a special lease contract, called a Jeonse contract, which is a distinctive leasing system only found in Korea. Our analyses have relevant policy implications considering that the housing contract types of young adults affect not only their residential stability but also their future asset accumulation. JEL Classifications: D14, R21, R31