Does Housing Affordability Pressure Hinder Education Investment? Evidence From Education Spending in European Countries

Abstract

The housing cost burden plays a sizable portion of household spending and affects other financial-related behaviors. Large mortgage or rent costs make it difficult for parents to invest in their own education as well as that of their children, which causes a crowding-out effect of education expenditures due to high housing cost burden. Improving the educational standards of individuals and countries requires enormous expenditures. It is worth exploring whether the behavior of investing in education will be affected by housing affordability pressures. This paper explores whether high housing costs crowd out education expenditures using data on housing prices, housing affordability, and household education expenditures in European countries. Five education-related expenditures—preschool, elementary school, junior high school, senior high school, and higher education—are analyzed in this paper. Empirical evidence suggests that, although the crowding-out effect exists, the relationship between different stages of education spending and housing cost burden varies. Compulsory education spending (elementary school, junior high school, and senior high school) is significantly affected by the crowding-out effect caused by high housing cost burden. Crowding out of educational spending for senior high school and higher education by housing prices only exists in cases where education spending is lower. The results indicate how housing affordability can also spill over into the education environment, leading to educational resource disparities. If the government of a country does not prevent the burden of housing costs from becoming too high, it may impede the accumulation of human capital in the country and widen social inequality.