Home Prices and Making Babies

March 7th, 2014
in econ_news

News reposted from Hallmark Abstract Service

by Michael Haltman

Do higher home prices lead to an increase in the birth rate?

A study was conducted at the University of Maryland and, according to the results, the answer to that question is that it all depends!

It depends on whether you are currently a homeowner or not!

For this purposes of this study, if the couple in question is currently a homeowner during the period of home price appreciation then the answer is yes, the birth rate does increase.

Follow up:

In part this can be attributed to the wealth effect and the fact that when people are thinking about children they will typically also be thinking of the money it is going to cost to raise them.

On the flip-side, if a couple is not a homeowner during the time home prices are rising then the birth rate for that demographic actually declines. This is also somewhat understandable because it is now going to cost them more to buy a house creating a sense that they may not be able to afford having a child at the same time.

Interestingly the study also found that home prices had a greater impact on current-period birthrates than unemployment does.

Recognizing that housing is a major cost associated with child rearing, and assuming that children are normal goods, we hypothesize that an increase in house 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 will increase home equity, leading to a positive effect on birth rates. Our results suggest that indeed, short-term increases in house prices lead to a decline in births among non-owners and a net increase among owners. The estimates imply that a $10,000 increase leads to a 5 percent increase in fertility rates among owners and a 2.4 percent decrease among non-owners. At the mean U.S. home ownership rate, these estimates imply that the net effect of a $10,000 increase in house prices is a 0.8 percent increase in current period fertility rates. Given underlying differences in home ownership rates, the predicted net effect of house price changes varies across demographic groups. In addition, we find that changes in house prices exert a larger effect on current period birth rates than do changes in unemployment rates. (Source)

It's a thought-provoking study and from personal experience may be a theory that has some validity. What do you think? Leave your comments below.


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