International Real Estate Review

The purpose of this research is to empirically test whether house price increases are an important factor in a household’s savings decisions and whether housing tenure choice and savings behavior are inter-correlated in Taiwan. Heckman's two-stage procedure for correcting sample selection bias is used in the estimation of savings function for homeowners and renters. Household survey data from 1985, 1989 and 1993 are used to compare households' saving behavior at different times. The empirical results show that in some cases the coefficients of the two different definitions of house price increases have opposite signs. These differences may be the result of different behavior motives. House price increases with respect to the price of the house itself seem to cause concern among households about future housing prices; hence, increase their savings ratio. House price increases with respect to income, however, seem to cause a wealth effect and then decreased savings ratio. Considering the complexity of households' reaction, the overall effect of house price changes on the aggregate savings ratio becomes impossible to determine.