The intergenerational transmission of housing wealth

Rising wealth inequality has spurred an increased interest in understanding how and why wealth is correlated across generations. Prior research has found an intergenerational correlation between 0.2 and 0.4 and has emphasized the role of family characteristics in driving this correlation. We contribute to this literature by examining the intergenerational transmission of wealth changes, which allows us to isolate the causal effect of wealth shocks from predetermined parental preferences and household characteristics. Using Danish Register Data, we examine the effect of home price changes that occur between ages 0-5, 6-11, and 12-17 on the value of the home children own at ages 29-33. For the youngest age group, we find that 12.7% of each Krone of home price change is transmitted to housing wealth in adulthood. The transmission rate for the 6-11 age group is higher, at 20.5%, and there is no transmission of home price changes that occur during the teenage years. Examining mechanisms, we find that home price increases in the first two age groups lead to modest increases in home ownership and educational attainment. There also is an increase in non-housing wealth, income, and partner wealth for the middle age group. Income and education can explain only 20-30% of the intergenerational transmission we document. We argue that our results largely reflect changes to parental/household behaviors and preferences that are passed down to children and cause them to accumulate more housing wealth in young adulthood.