Shinichiro Iwata (University of Toyama, Japan) Michio Naoi (Keio University, Japan) 1

The asymmetric housing wealth effect on childbirth

Shinichiro Iwata (University of Toyama, Japan)Michio Naoi (Keio University, Japan)

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The economics of fertility

Income Children are normal goods Income # of children

Housing wealth Housing price Available housing wealth # of

children Housing and children are complements Housing price # of children

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Lovenheim and Mumford （ 2013 ）

US individual-level data (the Panel Study of Income Dynamics) from 1990-2007.

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Prob (Childbirth) Homeowners RentersChanges in self-reported home values (four years, $100,000 )

16.4%

Changes in the MSA-level housing price(four years, $100,000 )

Negative and insignificant

Dettling and Kearney （ 2013 ）

MSA-level fertility rates on MSA-level housing prices during the 1997-2006

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Fertility rates Homeowners Renters

House price index (1 year lag, $100,00) 5% 2.4%

Housing bust and a symmetric negative impact

Lovenheim and Mumford （ 2013 ） 17% of the subsample: price declines Response is not symmetric

Dettling and Kearney (2013) Housing bust period (1990-96) The same tendency

More work is needed

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What we do in this paper

Housing bust period The Japanese housing market: two decades of

price decline An asymmetric housing wealth effect

The loss aversion hypothesis and the theory of reference-dependent preferences

Households care more about housing wealth losses than equivalent gains

Budgets Utility

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The theory of childbirth and housing wealth 1

Households’ surplus from having a baby

B: the probability of childbirth

W: housing wealth, exogenous

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Depends on W

The theory of childbirth and housing wealth 2

Modified surplus functions

if

if

, : the value function, diminishing marginal utility

: a reference wealth level　

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The value function

Subjective value

W𝑊∗

))

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*)=

Optimal probability to have a kid

B*

W𝑊∗

W <

W >

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• Above the reference point: weak positive impact

• Below the reference point: strong positive impact

Asymmetric Hypothesis

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Data

Keio Household Panel Survey Large-scale panel data started in 2004 Initial sample of approximately 4,000

households aged 20-69 Sample

2004-2011 (8 waves) Childbirth behavior: Wives aged less than 50 Homeowners N = 3125

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Variable: childbirth 1

Query about a change in household member

Childbirth dummy (B): Respondents have a baby in the last 12 months

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Whether you have a baby in the last 12 months

Variable: childbirth 2

Cross-check

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Variable: housing wealth 1

Self-reported house values

How much do you think the house and lot would sell for on today’s market?

: A self-reported housing wealth in period t

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Variable: housing wealth 2

Reference point

The self-reported value in the previous year (W*t–1 )

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Variables: Other

Characteristics of married women Age, the level of completed education,

employment status before birth, duration of marriage, Number of existing children,

Characteristics of household Annual income, Husband’s labor income,

residential location

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Empirical model

Logit model

: childbirth dummy : indicator function that takes 1 if A is true

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Empirical result 1

Benchmark Symmetric response House values have

positive impact on birth

Consistent with previous literature in US

Childbirth Coeff.

Duration of marriage -0.1090*

# of existing children -0.6718**

Age 1.3119**

-2.1468**

Household income 1.0729**

Change house value from the reference

0.0932+

3,125

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Empirical result 2

Renter Symmetric response House values have

negative (but insignificant) impact on birth

Consistent with previous literature in US

Childbirth Coeff.

Duration of marriage -0.1958**

# of existing children -0.3354

Age 0.4368

-0.7929+

Household income 0.9272

Change average house value from the average reference

-0.4682

1,35520

Empirical result 3

Asymmetric response (Model [1])

Support asymmetric response hypothesis

Childbirth [1] [2] [3]

Change house value from the reference

Above () 0.0454 0.0606 0.0446

Below 0.4196* 0.4372* 0.4540*

2.92* 2.69+ 1.23

3,125 2,560 3,12521

10 million JPY 30%

Childbirth [1] [2] [3]

Change house value from the reference

Above () 0.0454 0.0606 0.0446

Below 0.4196* 0.4372* 0.4540*

2.92* 2.69+ 1.23

3,125 2,560 3,125

Empirical result 4

Robustness check (Model [2]) Exclude The result is the same

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Childbirth [1] [2] [3]

Change house value from the reference

Above () 0.0454 0.0606 0.0446

Below 0.4196* 0.4372* 0.4540*

2.92* 2.69+ 1.23

3,125 2,560 3,125

Empirical result 4

Robustness check (Model [3]) Random effect logit

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Implication

Japan has experienced two decades of house price declines. This may have a substantially negative effect on fertility decisions of households in Japan.

Even if house wealth turn to increase, fertility rates of homeowners may not dramatically recover.

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