Research shows a new way of considering the impact of rising house prices: higher prices mean higher incomes for existing homeowners’ children as they age. Unfortunately, the increase in prices also reduces the earning levels of renter’s children in the future. “The results show that a 1 percentage point increase in house prices, when children are 17-years-old, results in roughly 0.8 percent higher annual income for the children of homeowners, and 1.2 percent lower annual income for the children of renters,” the report states.
The research published last week by the Federal Reserve Bank of Boston, titled House Price Growth When Kids Are Teenagers: A Path To Higher Intergenerational Achievement, demonstrates that cash-strapped homeowners’ children are those who will most benefit from rising house prices, presumably because they can tap home equity to help fund investments in their children such as paying for college. The benefits for homeowners’ children when home prices climb also means they are more likely to graduate from college and have less noncollateralized debt as young adults.