When House Prices Rise, Birth Rates Fall (and Rise): A Tale of Two Households

“Why aren’t young people having kids?”

It’s a question that economists, demographers, and policymakers have been grappling with for years. We often hear explanations that point to rising student debt, changing gender norms, delayed marriage, or even lifestyle preferences. But a groundbreaking paper by economists Lisa J. Dettling and Melissa Schettini Kearney titled “House Prices and Birth Rates: The Impact of the Real Estate Market on the Decision to Have a Baby” adds another powerful force into the conversation — housing.

The paper explores a deceptively simple question: Do changes in local housing prices affect whether people decide to have children? At first glance, this may seem like an indirect relationship. But as the authors demonstrate through rigorous empirical work, the connection between the real estate market and fertility decisions is both statistically significant and socially consequential.

Housing and Fertility: An Economic Tension

At the heart of the paper lies an elegant economic insight: the price of housing, as both a cost and a form of wealth, can push family planning decisions in opposite directions — depending on whether a household rents or owns its home.

When house prices rise, renters face increased financial strain. They may struggle to afford larger living spaces, face tighter budgets due to rising rents, and feel less secure about the future. This makes starting or expanding a family more difficult. Economists refer to this as the price effect — higher housing costs act as a deterrent to having children.

In contrast, homeowners experience something quite different. A rising housing market boosts their net worth, often dramatically. This makes them feel wealthier and can increase their access to credit through home equity loans. The wealth effect suggests that homeowners may be more likely to feel financially secure enough to support a growing family.

This duality is at the core of Dettling and Kearney’s study. The key hypothesis is that these two effects — the negative price effect and the positive wealth effect — operate in opposite directions and must be disentangled to understand how housing truly affects fertility.

How the Study Was Conducted

To explore this relationship, the authors compile a rich and extensive dataset. They use individual-level data from the American Community Survey (ACS) and Vital Statistics Birth Records, as well as regional house price information from the Federal Housing Finance Agency (FHFA). The study covers over 150 U.S. metropolitan areas between 1990 and 2007, allowing for both cross-sectional and time-series variation.

The methodology is rigorous and modern. The authors use panel regression models with fixed effects to control for unobserved heterogeneity across metro areas and over time. More importantly, they analyze the data separately for renters and homeowners, which allows them to isolate the price and wealth effects more cleanly. They also conduct a series of robustness checks to address concerns like migration, time trends, and regional shocks.

Crucially, the authors not only observe whether people are having children, but also investigate how these decisions vary across different population groups — by age, education, marital status, and housing tenure.

The Findings: Opposing Effects, Real Impacts

The results are both intuitive and striking. On average, a $10,000 increase in local home prices is associated with:

• A 5% increase in the probability of birth among homeowners.
• A 2.4% decrease in the probability of birth among renters.

This pattern holds consistently across age groups and demographic subpopulations. The implications are profound: housing market dynamics are not neutral — they redistribute fertility outcomes across economic lines. When the housing market booms, it encourages childbearing among wealthier, asset-holding households and discourages it among those without property.

The study also finds that these effects are not limited to first-time parents. Higher-order births (second or third children) are similarly affected, suggesting that housing plays a role in long-term family planning, not just initial fertility decisions.

When combining the effects across the entire population — given that about 44% of U.S. households in childbearing age are homeowners — the net effect of a home price increase is a modest 0.8% rise in aggregate fertility. However, this average masks the underlying divergence between renters and owners.

Interpreting the Results in Real-World Context

The economic and social meaning of these findings is far-reaching. Consider two metro areas: one predominantly owner-occupied (say, suburban Utah) and one heavily renter-based (like San Francisco). In a housing boom, fertility may increase in the first and decline in the second — even if the underlying preferences of people don’t change. This demonstrates how economic infrastructure, not just culture, shapes demographic patterns.

More subtly, these results show how wealth inequality — especially housing wealth — can translate into family formation inequality. As homeownership becomes increasingly out of reach for younger generations in expensive cities, the decision to have children is deferred or abandoned, not necessarily by choice, but by constraint.

The Checks: Are These Results Robust?

To ensure their findings are not spurious, the authors perform a series of robustness tests. They rule out confounding factors such as:

• Selective migration: controlling for people moving in/out of areas with changing prices.
• Labor market effects: controlling for unemployment and wage growth.
• Reverse causality: ensuring fertility trends don’t themselves affect housing prices.

They also employ instrumental variable (IV) strategies using supply elasticity measures (how easily new housing can be built in an area) to further isolate exogenous variation in house prices. These techniques add substantial credibility to their conclusions.

Policy Implications

So what should policymakers take away from this?

First, if governments are concerned about falling fertility rates — as many developed nations are — then housing affordability must be on the agenda. Policies that expand access to affordable housing, especially for young renters, could play a subtle but meaningful role in encouraging family formation.

Second, this paper reinforces that wealth inequality has spillover effects. It doesn’t just affect income or consumption. It affects how, when, and whether people build families.

Third, if housing wealth is the primary vehicle through which families feel secure enough to have children, then housing market volatility may create fertility volatility — booms and busts not just in construction, but in demographics.

Final Thoughts: The Economy of the Cradle

At first glance, housing prices and birth rates seem like they belong in two separate conversations. One is about real estate; the other, about human biology and choice. But as this paper so effectively demonstrates, they are intertwined in complex and consequential ways.

By drawing a clear connection between housing markets and fertility decisions, Dettling and Kearney challenge us to think more deeply about the economic structures that shape our most personal life choices. The cradle, it seems, is not untouched by the invisible hand of the market.

If we care about the future — not just of the economy, but of society itself — then we must recognize that where we live, and what it costs to live there, may be silently shaping the next generation.

References

Dettling, L. J., & Kearney, M. S. (2014).
House Prices and Birth Rates: The Impact of the Real Estate Market on the Decision to Have a Baby.
National Bureau of Economic Research Working Paper No. 17485.
https://www.nber.org/papers/w17485