House Price and Fertility Decisions: Evidence from Taiwan

Abstract

Given the concurrent incidence of falling birth rates and increasing house prices experienced in Taiwan over the past two decades, the current thesis examines the role of house prices on fertility-related behaviors and outcomes among Taiwanese households. Acknowledging that housing is a major cost associated with childrearing and the theoretical assumption that children are normal goods, we hypothesize that house price inflation will adversely impact fertility and that current non-homeowners are the most affected due to the “resource exhaustion effect”. Exploiting micro-level data and different econometric techniques, we capture the effect of house prices on fertility by three distinct models, namely a realized fertility (RF) model, a fertility intentions (LF) model, and a fertility gap (FG) model. The prevailing results showed a robust and statistically significant effect of house price inflation on the fertility gap, specifically, a one standard deviation increase in relative house price is associated with a 0.1 increase in the gap between desired fertility and actual fertility i.e., approximately 0.1 “missing babies” for every standard deviation increase in house prices. Additionally, we found that the fertility gap of current homeowners is less adversely impacted due to house price inflation compared to non-homeowners.