Wealth Accumulation and Housing Choices of Young Households : An Exploratory Investigation

This article describes the wealth accumulation of American youth and relates it to their eventual housing choices. A data set is compiled for youth ages 20 to 33 for the years 1985 through 1990. We construct wealth profiles for each household and compare these profiles across different patterns of labor supply, marriage, fertility, gender, education, race/ethnicity, and tenure choice. We find that renters' wealth accumulates rapidly in the year before and year of first homeownership. The factors related to this increase are marriage, increased labor supply by married women, and gifts and inheritance. Of particular interest is the finding of an inverse U-shaped relationship between the local price of housing and middle- and upper-income renters' wealth. However, there is no relationship between these variables for low-income renters. One difference between these groups is that low-income renters have no tax advantage once they become homeowners