THE HOUSING BUBBLE BABY BOOM: Spiralling UK house prices mean homeowners have more kids, but renters postpone starting families

06 Apr 2017

Rising house prices cause homeowners to have more kids and renters to have fewer, according to research by Cevat Giray Aksoy, to be presented at the Royal Economic Society''s annual conference at the University of Bristol in April 2017.

The author finds that for UK homeowners, a 10% increase in house prices leads to a 2.8% increase in births – but a 4.9% decrease among renters. Putting these together, a 10% increase in house prices leads to a 1.3% fall in the English birth rate. This may be because the increased wealth of homeowners allows them to start a family, while private renters postpone having kids until they are on the property ladder.

These findings are potentially important from a public policy standpoint: if the negative effect of house prices on fertility rates is mainly driven by the younger cohort (that is, couples put off having children because they aren''t able to afford suitable accommodation), it may be possible to reverse this trend through the design of better housing and/or child benefit schemes.

One example would be to scrap the Help-to-Buy ISA''s maximum purchase cap of £250,000 and £450,000 for London. This cap limits couples to buy two or more-bedroom family homes and creates a barrier for young potential first-time buyers.

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How soaring house prices affect birth rates? New evidence from England

My estimates suggest that a 10% increase in house prices leads to a 2.8% increase in births among homeowners and a 4.9% decrease among renters. Once calculated at the average home ownership rate, a 10% increase in house prices leads to a 1.3% fall in birth rates in England.

Price changes in the housing market have been a much-debated topic in England in recent years. According to the Land Registry data, average house prices in England have increased by nearly 290% between 1995 and 2013 – from £67,000 to £234,000 – with some counties experiencing a more than 900% rise in house prices. Subsequently, these strong movements in the property market have generated inevitable effects on households'' wealth and disposable income.

This unique housing market structure, and its close link to household spending decisions, suggests a plausible connection between housing tenure and having children in England. In an attempt to unravel this relationship, I investigate how birth rates are affected by changes in house prices separately for homeowners and renters through income and price effects.

There are two ways of looking at this interaction:

• On the one hand, given that housing wealth is a major component of the household''s assets for homeowners, an increase in house prices leads to an increase in demand for children.

• For tenants, on the other hand, higher rent payments may force them to reduce their consumption in line with the increase in cost of housing, generating a negative price effect on the demand for children.

I show that the negative price effect among renters is mainly driven by those aged 20-29. In contrast, the positive effect of house prices on birth rates is driven primarily by the older cohort (those aged 30-44), in which people are significantly more likely to be home owners and less likely to postpone having children.

These findings support the notion that housing costs exert downward pressure on the fertility outcome of young adults and that there is a connection between getting on the property ladder and building a family.

The findings of this study are potentially important from a public policy standpoint: if the negative effect of house prices on fertility rates is mainly driven by the younger cohort (that is, couples put off having children because they aren''t able to afford suitable accommodation), it may be possible to reverse this trend through the design of better housing and/or child benefit schemes.

One example would be to scrap the Help-to-Buy ISA''s maximum purchase cap of £250,000 and £450,000 for London. This cap limits couples to buy two or more-bedroom family homes and creates a barrier for young potential first-time buyers.

If such government schemes help people not only to get a foot on the housing ladder but also afford a family house rather than a flat, they could decrease the number of privately rented households with children.

Cevat Giray Aksoy

Principal Economist Office of the Chief Economist, EBRD