Fertility and Housing Market: Australian Evidence

Abstract

This thesis comprises three papers examining the relationship between fertility and housing. The first paper takes a macro perceptive and presents time series evidence on the aggregate relationship between fertility rate and house prices in Australia. An exploration of underlying household decision-making is undertaken in the second and third papers using micro panel data. The second paper examines the effect of changes in house prices and housing wealth on fertility related decisions among non-moving households across housing tenures. The third paper investigates the alternative response of residential relocation in anticipation of childbearing. The first paper provides aggregate evidence on the secular relationship between fertility rates and house prices over the period 1971-2014 in Australia. Standard cointegration analysis is applied to the endogenous and nonstationary time series variables in the fertility demand function. The stationary long-run cointegrating relationship between total fertility rates, house prices, female labour force participation rates, and male and female wages is modelled for each state and territory. The macro estimation shows some evidence of a negative correlation between fertility rate and house prices, especially in some major housing markets and for the early 30s cohorts. Some age groups across states and territories exhibit a positive association between fertility rate and house prices, which may reflect the housing wealth effect on fertility consumption. Alternatively, it may be explained by the regional migration of young couples. A more comprehensive understanding on the underlying household behaviour however requires the examination on microdata. Recognising the distinctive implications of house price movement across housing tenures, the second paper examines the effect of changes in house prices and housing wealth on fertility related decisions using the Household, Income and Labour Dynamics in Australia (HILDA) survey during 2001-2015. The identification of conditionally exogenous changes in house prices with respect to fertility decision exploits the geographic and temporal variation in housing prices across localities and over time. Focusing on non-moving owner and rental occupiers, the study finds that the childbirth among homeowners respond positively to the increase in housing wealth while the fertility intention of renters respond negatively to the higher market housing prices. The positive housing wealth effect has the greatest impact on the fertility and fertility intentions of homeowners who are married or mortgaged with moderate borrowing constraints. Households can also respond to housing market development by residential relocation. The third paper considers the ease or difficulty of housing adjustment in anticipation of family growth, and explores the impact of fertility desire and expectation on residential mobility over various distances. Several empirical strategies such as correlated random effects models, simultaneous equations models, and instrumental variable models are implemented to correct for the possible bias in unobserved heterogeneity and joint determination. Using the same dataset as the second paper, the study finds a significant impact of fertility intention on residential relocation in Australia, with large heterogeneity across housing markets and relocation distances. The estimating results suggest that fertility-induced moves are mainly observed for households residing in the housing markets with low affordability pressures and often occur intra-regionally across local government areas.