The asymmetric housing wealth effect on childbirth

Abstract

The existing literature has shown that increases in housing wealth, driven by unexpected house price shocks, have a positive e¤ect on birth rates of homeowners. According the canonical model, a decrease in housing wealth has a symmetric negative impact on fertility behavior of households. That is, housing gains and losses of the same size should have identical quantitative e¤ects (in an absolute sense) on fertility. In comparison, the theory of reference-dependent preferences suggests that people care more about housing losses than about equivalent gains, leading to an asymmetric housing wealth e¤ect on a fertility decision.In our model, a utility from having a baby is weighted by a utility from house price where reference levels based on the house price in the prior years. The theoretical model suggests that the probability of giving birth is kinked at a reference housing wealth level and the wealth e¤ects are discontinuously larger below the kink than above the kink. This theoretical prediction is tested using the recent survey data of Japanese households (Keio Household Panel Survey, KHPS). The KHPS is a nationally-representative, large-scale panel data started in 2004 with initial sample of approximately 4,000 households. Our empirical results suggest that, consistent with the theoretical prediction, homeowners'fertility responses are substantially larger when their housing wealth is below its reference level than when housing wealth is above reference level. Speci…cally, while estimated marginal e¤ect is signi…cantly positive when housing wealth is below its reference level, it is still positive but insigni…cant when housing wealth is above reference level. Furthermore, we also …nd that asymmetric wealth e¤ects are robust to a number of alternative speci…cations, including controlling for possible measurement errors and unobserved heterogeneity of households.