Saturday, September 3, 2011

Rising house prices and declining fertility

Singapore has one of the lowest fertility rates and one of the most expensive housing prices in the world. We have Total Fertility Rate (TFR) of less than 1.2, which is well below the population replacement level.

And while fertility rate is declining to new lows, housing prices are still increasing to new heights. May there be a link between rising housing prices and declining fertility? According to Tilak Abeysinghe from Singapore Centre for Applied and Policy Economics, there is a link between this two.[1]

In the "Ask: NUS Economist" column of The Straits Times, Mr. Abeysinghe shares a very interesting graph which implies a positive relationship between Housing Affordability Index (HAI) and Total Fertility Rate  (TFR) of Singapore[1]. Positive relationship means when HAI increases, TFR also increases. So in the past when housing became less affordable, fertility declined and when housing became more affordable, fertility rose. The link is only distorted in auspicious years for babies in the Chinese calendar. I do not have permission to reproduce the graph here, you can follow the link below and see it in the pdf file.

He then offers a solution to stop further decline in the fertility rate: sustain housing affordability:

"When housing affordability drops, fertility appears to also dip. It may be the case that young couples want to secure a roof over their heads before getting married and having children. When housing affordability drops. they will have to wait longer to secure a house and this may come at the expense of family size.

Although fertility rate is stubbornly less responsive to many factors, it is possible that sustaining housing affordability may hep at least in arresting the precipitous decline in the fertility rate."

I think it is not only couples delay having kids under they move to a new house (which can take up to 5 years after marriage to get a new HDB at the moment), they are also having less children then they actually want to have. This is because the unaffordable houses suck the portion of their monthly income which would be use to raise one more child.

This report was in the last pages of the newspaper and did not draw the attention it deserves. If the correlation is there, we will see further decline in fertility due to the current housing high prices.

[1] - Fewer children when house prices head north 

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