Why Aren’t Millennials Having Children? It Might Be Due To High Real Estate Prices

Millennials aren’t having children and experts believe high home prices are a big part of the issue. An NBER working paper titled House Prices and Birth Rates: The Impact of the Real Estate Market on the Decision to Have a Baby looks at the influence of home prices on births. They found higher home prices promote a higher birth rate, but only for those that own a home. Households that rent showed a reduction in births. As ownership rates drop and prices become out of reach for young adults, this becomes a huge problem.

Rising Home Prices Raise Birth Rates For Those That Own, and Lower Birth Rates For Those That Don’t

The researchers found an increase in home price leads to higher birth rates, but there’s a big catch. It turns out to benefit from the rise in home prices, you need to own a home. The fertility rate for those that rent, dropped. Surprisingly, an increase of just 1/5 of how much Toronto home prices increased in January, was enough to trigger this response.

The researchers found faster home price growth means sharper birth declines. In US Cities, births for homeowners increased by 2.1% for every $10,000 price increase. However, those that rent showed a 0.4% decline in births over the same movement. In the new economy where home prices don’t fall, only incomes do, this is a problem. Ownership rates are plummeting for young people, and so is the fertility rate.

They attribute this to a wealth effect. Rising home prices allow households to feel wealthier and consume. Children are considered a “good” in terms of consumption. Yes, genuinely unbiased experts refer to kids as a “good”. 

Even Countries With Social Programs To Increase Births Respond To Home Prices

Sure, but that’s America. Countries with pro-natalization programs like Denmark must be different, right? NBER has a paper for that too — Home Prices, Fertility, and Early-Life Health Outcomes, led by Danish researchers. They found a similar trend where homeowners are incentivized by higher home prices. At the same time, home prices rising faster than incomes has led to fewer homeowners.

Even the researchers didn’t expect more social states to respond in a similar way. They literally wrote, “…which is surprising given the strong pro-natalist policies and generous government programs in Denmark.”

Canada Shows A Similar Trend Between High Home Prices and Birth Rates

Canada doesn’t conduct much research around the influence of housing. Heck, the country only just realized lower interest rates produce higher home prices. A little behind the curve, largely because housing data is notoriously privatized. However, we can use data from the US Federal Reserve to get a 10,000 ft view of the issue. Let’s look at the 4-year average for real home price growth and the change in the fertility rate.

Canadian Real Estate Price Vs Fertility Rates

The growth rate for real home prices and the fertility rate. Four-year averages are used to minimize the year-over-year volatility of birth rates.

Source: Statistics Canada; US Federal Reserve; Better Dwelling.

Generally, we can see the fertility rate rise a few years after a real estate boom starts. That fits the above finding, since those who own a home are likely seeing the benefit of the wealth. However, we can see the fertility rate dive shortly after the increase. Towards the end of a housing boom, we see fertility contracts. That would make sense, since at the end of a boom — few new households are able to buy. Younger buyers in the market are exhausted, and investors tend to take over. Until the cap rates improve on children, investment firms aren’t pumping out many kids. 

The changes around the Great Recession are interesting, since home prices don’t correct. Canada sees persistent home price growth that many policymakers warned about, but warnings went totally ignored. The positive effect on births collapsed in 2010. From 2011 onward, home prices persistently make gains while fertility drops. The decline in fertility accelerates shortly after big home price jumps as well. 

Let’s zoom in on ownership around this period to get a better look at the issue. Enhance.

Canadian Homeownership For Young Adults

The homeownership rate for Canadians under 35 years old.

Source: Statistics Canada; Better Dwelling.

Canadian homeownership rates make a sharp decline for those under 35 years old. The rate peaks in 2011 when it hits 47.3%, right when the fertility begins to purge. By the 2016 Census, the ownership rate dropped to 43.6% of people under 35. Nearly a 4 point drop in ownership, which equals a 7.8% loss in share for those young adults. At the same time, fertility continues to slide lower. There’s a relationship that probably deserves a deep dive. 

Immigrants Are A Temporary Fix, But They Get Stuck With The Same Deal

Who needs kids when we have immigrants, right? Experts often promote immigration as a solution to falling fertility rates. Demographic liabilities can be fixed by importing young adults ready to pay taxes and consume. Heck, you don’t even have to pay dependency services to get to them to that point. However, they aren’t magic. Immigrants face the same economic situation as everyone else their age in the country. 

There’s only two ways this works. The first is the immigrants never collect the liabilities. After paying into a system for their whole life, they die or move and decide they don’t need repayment. That’s an unlikely scenario, or a morbid one. More likely, the plan is to just keep finding new immigrants to pay for the old ones.

Each new cohort is larger and pays for the previous one. I believe the strategy is based on the work of noted economist Charles Ponzi. 

It’s sold as a friendly way to help immigrants, but really it’s just predatory colonialism. The only difference is instead of taxing the labor abroad, you bring the labor in and tax it instead. What are we, psychopaths? We might as well tell minimum wage workers their heroes to get them to go to work, but not pay them as essential.

High home prices show a strong relationship with births and growing demographic issues. Immigration can smooth some issues for older demographics, but not for everyone. They also can’t do it forever, since the circumstances of attracting immigrants becomes more and more predatory.

The demographic problems compound and nothing really gets fixed. All but the very wealthiest immigrants find themselves in a similar situation domestic young adults are in at a similar age. In fact, many find themselves in a worse situation, since immigrants are often paid less, especially in big cities

Don’t worry. Everything will be fine as soon as hedge funds figure out how to give birth.

11 Comments

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  • Patrick 12 months ago

    Countries are run by grifters only trying to outrun their own terms. The can was kicked from 2008 until 2022, which has to be some sort of can kicking record.

  • Michael Armstrong 12 months ago

    Don’t worry, the government will fix this by building $1 million 300 square foot boxes.

  • Bruno 12 months ago

    Good point. There really is something psychopathic about the way politicians say immigrants are needed for Canada, not we need to attract them.

    They also tend to parade out one or two key “success” stories, that are nothing like the average person. Millionaires that would be wealthy regardless of where they’re from.

  • Freddy 12 months ago

    The Canadian government is creating a feudal system. The weathy land-owners suck the wealth sweat and tears out of the peasants, all sanctioned by the state.
    Peasants don’t want to reproduce? No problem, we will import more peasants from aboard.

  • Wade 12 months ago

    As a millennial this is 100% true and very discouraging. To the crowd who says “lower expectations, be more European, raise a child in a rental or apartment” it is not as if renting is much cheaper than owing – renters my age often pay close to the same per month as home owners, we just don’t have the 100k++ needed to get into the homeowning class, and what 30 year old does without significant parent support? Yes I can wait until 35-40 until I have a down-payment ready, but biology does not wait. Homeowners have more stability in their costs and more a more certain financial future, no wonder they see themselves as better able to raise children.

    • Woolsock 12 months ago

      Abolutely. We’re not even millenials and our “biological bus” is pulling out of the proverbial station. It would be fine to live more like Europeans, but we just can’t live more like Europeans here. First, there aren’t many European-like flats here – they’re actually pretty large, in small buildings because they were actually built for families, not single 20-somethings. Property like that here – it’s very “European-ness” – would fetch a premium on top of over-priced everything. Second, we did live in Europe and, while certain things were more expensive, broadly our cost of living was lower than in Canada. No need for a car (let alone two), for example, plus a decent salary making a single income family actually possible. Crazy talk, I know. We were actually never closer to getting on said biological bus than we were when we lived there. We even have a hefty sum saved and invested, but at this point I’d really, really rather it didn’t go to Canadian real-estate.

      I think Canadians have either been convinced otherwise or largely forgotten that we’re not supposed to owe huge sums of money for our entire adult lives. I don’t know how we got this way.

  • Joe 12 months ago

    Considering the number of jobs available in Canada, I would say the country is overpopulated. The population of Canada needs to reduce by 30% to ensure a decent standard of living. A lower population would also lower demand for housing and make it affordable.

    The situation is the same in the US too. US is overpopulation based on the number of jobs available.

    With automation, there is a fewer need for people and there will be fewer jobs available.

  • Jappan Singh 12 months ago

    Family formation is off for me. Yes it is due to cost of living. Plan is to find another country to live.

  • Alice 12 months ago

    Screwed entire generation due to greed and capitalism, but can import 400k immies during a pandemic, so they can have proverty children in Canada.

  • D 12 months ago

    How can one realistically pay off $1.5 million home with an average wage of $70k and high living expenses even if you go cheap?

  • Cto 12 months ago

    We are a median class household, own 1 house, one child who is 12. This kid works hard and does well in school, but I worry every day that his future in Canada is likely to be one of very meager existence, even with university. ..I’ll never tell him, but continue to stress,…try, try, try, and good things come to those wait.
    Oh well….

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