House Prices and Birth Rates: The Impact of the Real Estate Market on the Decision to Have a Baby

This project investigates how changes in Metropolitan Statistical Area (MSA)-level housing prices affect household fertility decisions. Recognizing that housing is a major cost associated with childrearing, and assuming that children are normal goods, we hypothesize that an increase in real estate prices will have a negative price effect on current period fertility. This applies to both potential first-time homeowners and current homeowners who might upgrade to a bigger house with the addition of a child. On the other hand, for current homeowners, an increase in MSA-level house prices might increase available home equity, leading to a positive effect on birth rates. Controlling for MSA fixed effects, trends, and time-varying conditions, our analysis finds that indeed, short-term increases in house prices lead to a decline in births among non-owners and a net increase among owners. Our estimates suggest that a 10 percent increase in house prices would lead to a 4 percent increase in births among home owners, and a roughly one percent decrease among non-owners. The net effect of house price changes on birth rates varies across demographic groups based on rates of home ownership. Our paper provides evidence that homeowners use some of their increased housing wealth, coming from increases in local area house prices, to fund their childbearing goals. More generally, the finding of a “home equity effect” demonstrates empirically that imperfect credit markets affect fertility timing.