(Job Market Paper) The Joint Dynamics of Family Housing and Childbearing Decisions: an Empirical Application
Abstract: Housing price growth is now and then blamed for causing fertility decline in cities. As the cost of housing rises over the years, it is likely the increasing financial burden not only bars new home buyers from entering homeownership but also has an impact on their family plan to raise children. The net impacts on fertility and on sequencing of home buying and childbearing are unclear however. By formulating the family behavior of housing and childbearing as a joint decision-making process, we investigate the effect of local housing price variation on both behaviors simultaneously for non-homeowning women in the United States. We estimate a multinomial logit model of the interaction of the two binary choices, entering homeownership and childbearing, using family data from the Panel Study of Income Dynamics between 1985 and 2015 and the corresponding metropolitan statistical area level house price data imputed from the Federal Housing Financial Agency and the Census. The results show that a high house price level strongly discourages the probability of entering homeownership, while it has a very mild net positive relationship with the likelihood of childbearing for non-homeowning women. In areas with high house prices, families are more likely to have a new baby before buying a home, mostly because of the substantial drop the probability of entering homeownership and childbearing in tandem in one or two years. Though the net effect on childbearing is small, high house prices would nonetheless raise the chance of parenting without homeownership. On the other hand, the effect of house price change, regardless of the price level, is hardly found.
Increases in House Price Uncertainty and the Discouragement of First-Time Homeownership (Working paper)
Abstract: Does an increase in housing market volatility discourage first-time homeownership? We develop a simple two-period model of housing tenure choice, in which the prospective first-time home buying household enters homeownership only if it can afford the mortgage down payment. The probability of homeownership is then increasing in first-period savings. We show that an increase in volatility, modeled as a mean-preserving spread in the distribution of the second-period house price, has an ambiguous effect on the homeownership probability. If the upside and downside risk were symmetric, a prudent household would respond to the increased risk by increasing precautionary saving, which would increase the homeownership probability. But the outside option of renting limits the possible loss, causing the upside and downside risks to be asymmetric and like an option. The overall effect depends on the prospective home buyer’s preferences towards risk (risk aversion and prudence) and on the particular form of the risk change. The model can also be applied to investigate the effects of other forms of uncertainty and of policy-related parameters on homeownership.