China: Hukou, House Prices, and Birth Rates
A new study (The Effect of House Prices on Fertility: Evidence from House Purchase Restrictions by Ziqian Liu and Yu Zhang) has uncovered a significant link between rising urban house prices and declining fertility rates in China, shedding light on the country's demographic challenges.
Why it matters
China's birth rate has been declining rapidly since 2016, sparking concerns about a looming demographic crisis with potential long-term consequences such as labor shortages, increased elderly care, and slower economic growth. Understanding the factors driving this trend is crucial for policymakers and has implications for the global economy.
By the numbers:
China's birth rate dropped from 13.6‰ in 2016 to an average of 9.3‰ during 2017-2021
National urban house prices increased by 54% between 2016 and 2021
A 10% exogenous increase in urban house prices is estimated to reduce birth rates by 0.88‰
The study estimates that house price increases accounted for 10.4% of the birth rate decline or 2.46 million fewer births
About the Study
The study leveraged a unique quasi-experiment involving house purchase restrictions (part of China’s Hukou system) in large cities. This redirected investment demand to nearby unregulated cities, causing an exogenous shock to house prices. This allowed the researchers to estimate the causal effect of house prices on fertility, overcoming the limitations of previous studies.
Key findings:
The fertility decline was concentrated among rural residents who don't own urban homes, especially in areas with scarce rural schools
Both reduced marriage rates and lower fertility within marriage contributed to the decline
Private educational investments increased in response to higher house prices, potentially offsetting some impacts on human capital
The effects were robust across various specifications and not explained by alternative factors like aging demographics, rural-urban migration, or changes to the one-child policy
What they're saying
The authors argue that rising prices thwarted urban homeownership aspirations, linked to marriage prospects and access to quality education, particularly for rural residents. This dynamic highlights complex relationships between housing costs, educational opportunities, and birth rates.
Bottomline
The study provides compelling evidence that surging urban house prices have been a significant driver of China's fertility decline in recent years, with important implications for inequality and human capital formation. Policymakers must grapple with these interconnected challenges as they seek to address the country's demographic headwinds.