The Impact of the Real Estate Market on Fertility

House prices are a relevant factor in a couple's decision to have a baby.

Housing prices have a significant impact on a family's decision to have children, according to a new study by Lisa Dettling and Melissa Schettini Kearney. In House Prices and Birth Rates: The Impact of the Real Estate Market on the Decision to Have a Baby (NBER Working Paper No. 17485), they find that a 10 percent increase in home prices leads to a 1 percent decrease in births among non-homeowners in an average metropolitan area. However, the negative effect among non-owners is offset by a 4.5 percent increase in births among current homeowners, who are now wealthier. The total fertility effect of an increase in house prices varies across demographic groups, largely because their rates of homeownership differ. The authors conclude that "house prices are a relevant factor in a couple's decision to have a baby..."

Rising home values have a negative impact on birth rates because they represent, on average, the largest component of the cost of raising a child: larger than food, child care, or education. This implies that when the price of housing rises, the price of having children also rises. This price increase leads couples to delay childbearing or to have fewer children altogether. On the other hand, for the average American household, housing constitutes a substantial portion of household wealth. When the price of housing goes up, the wealth of homeowners rises. This can lead them to choose to have children sooner or to have more children altogether. For otherwise credit constrained households, access to increased home equity can be used to fund child-related expenses. The authors find evidence for this phenomenon.

Previous papers have considered how fluctuations in employment affect birth rates. This paper suggests that house price changes are even more important than unemployment rates in driving birth rates. When the authors look at fertility rates of women ages 20 to 44 in 66 metropolitan statistical areas (MSAs) over the period 1990 through 2006, they find a higher correlation between fertility and housing prices (0.9) than between fertility and the unemployment rate (0.3).

During the period studied, house prices rose 42 percent on average. The authors find that white women who didn't own a home were more likely to put off child-bearing at this time than any other demographic group. However, because the homeownership rate for whites (56 percent) is higher than for other demographic groups, in the aggregate the rise in house prices had a positive fertility impact on whites. A 10 percent increase in housing prices is associated with a net increase in births among whites that is four times that of blacks (whose mean homeownership rate is 26 percent) and slightly ahead of white Hispanics (whose mean homeownership rate is 32 percent.)

The negative price effect among non-homeowners is more pronounced on subsequent births than on first births. Moreover, this negative price effect appears to be larger for women over the age of 30, while the positive home-equity effect appears to be larger for those below this age.

--Laurent Belsie