Journal of Real Estate Finance and Economics, 28:4, 319±337, 2004
# 2004 Kluwer Academic Publishers. Manufactured in The Netherlands.
The Economics of Housing Savings Plans
Faculty of Architecture and Town Planning, TechnionÐIsrael Institute of Technology, Haifa 32000 Israel
STEVEN E. PLAUT
Graduate School of Business, University of Haifa, Haifa 31905 Israel
Housing Savings Plans (HSP) are contractual savings products in which a household is granted a mortgage at
preferential terms (or option for such) in exchange for accumulating savings in the plan and in the institution
offering it. As such, they represent a bundle of savings and borrowing ®nancial services. While such plans are
common in some countries, the reasons for their use have not been fully explored. In some cases, HSPs are used
because ®nancial markets and institutions have not reached suf®cient levels of development to attract savings or
raise capital for housing ®nance, and in other cases, tax and subsidy incentives may be at play.
Here, we ask under which circumstances households and ®nancial institutions will voluntarily contract to
participate in HSPs even in advanced capital markets and in the absence of tax/subsidy incentives. We argue that
the HSPs may be chosen by households because of their hedging qualities. We model HSPs and show how changes
in variables affect the willingness of households to join the HSP and the characteristics of any HSP chosen.
Key Words: mortgages, contract savings, housing, banks
Acommon form of housing ®nance in many parts of the world involves the ``award'' of a
mortgage loan (or option for such) to savers in special savings plans, where the loan carries
preferential terms, usually at interest rates below market. The spreads between the
ordinary interest rates and the special savings programs, with respect to both savings
deposits and the loans, may be as much as several percentage points, but vary widely in
real world programs and are complicated by elements of subsidization and tax concessions
as well as unusual incentive structures, such as eligibility for loans ``kicking in'' only after
minimal savings periods.
The granting of the preferential mortgage is typically conditional on the person or
household having ®rst made deposits into the savings plan, which may also carry interest
rates below market,
in some minimal amount and/or held over some minimal period. For
example, minimum savings periods are usually seven years in Germany, six years in
Slovakia, ®ve years in the Czech Republic, four years in Hungary, two years in Poland.
Loans through Bauspar savings plans in Poland are made at about half the discount rate of
the Bank of Poland while savings deposits earn a quarter of the discount rate. In Hungary,
the Czech Republic and Slovakia the rates on comparable loans are 6 percent, well below
market rates. Bauspar deposits in Hungary typically earn about 3 percent interest, whereas