Will the housing bust produce a baby bust?

By S.J. | LONDON

AN INTERESTING new paper by Lisa Dettling and Melissa Kearney, both from the University of Maryland, investigates the effects of house-price fluctuations on birth rates. They write:

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...house prices might increase available home equity, leading to a positive effect on birth rates...

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...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.