The effect of the price or rental cost of housing on family size: a theoretical analysis with reference to New Zealand

Mimi Liu and Jeremy Clark

New Zealand Economic Papers, 2017, vol. 51, issue 3, 281-301

Abstract: We investigate the effect of higher house prices or rental costs on family size. We provide a static model of a household's choice of family size assuming constant elasticity of substitution preferences between children, leisure, and other goods, and Cobb–Douglas household production of children using parental time and housing. We then explore the wealth and substitution effects that changing house prices or rental costs have on desired family size. Renters are predicted to have fewer children in response to higher rents. Home owners are predicted to have more children in response to higher house prices only if they have sufficient initial housing and low substitution between family size and other consumption, and fewer children otherwise. Finally, we provide exploratory correlations between the change in lagged house prices or rental costs and the change in number of children born to women using aggregated census units in New Zealand. We find weak negative correlations in both cases.

Date: 2017
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DOI: 10.1080/00779954.2016.1199591

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