The effect of house prices on household saving: the case of Italy

In this paper we study the effect on Italian households’ saving behaviour of a change in real estate wealth using the Bank of Italy’s Survey of Household Income and Wealth (SHIW) dataset. We relate annual household saving to capital gains in housing, controlling for other characteristics such as age. In line with the empirical predictions of our model, we find the oldest households — who are less touched by the higher costs of future rents — to be the most affected by an increase in real net housing wealth; younger households, on the other hand, are not significantly affected by house price increases in their saving decisions. We also take into account that observing capital gains is conditional on owning housing wealth and estimate the different impact of house price changes on the savings behaviour of homeowners and renters. Our estimates suggest that a house price increase raised consumption not only for homeowners but also for renters.