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The asymmetric housing wealth effect on childbirth
Shinichiro Iwata (University of Toyama, Japan)Michio Naoi (Keio University, Japan)
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The economics of fertility
Income Children are normal goods Income # of children
Housing wealth Housing price Available housing wealth # of
children Housing and children are complements Housing price # of children
2
Lovenheim and Mumford ( 2013 )
US individual-level data (the Panel Study of Income Dynamics) from 1990-2007.
3
Prob (Childbirth) Homeowners RentersChanges in self-reported home values (four years, $100,000 )
16.4%
Changes in the MSA-level housing price(four years, $100,000 )
Negative and insignificant
Dettling and Kearney ( 2013 )
MSA-level fertility rates on MSA-level housing prices during the 1997-2006
4
Fertility rates Homeowners Renters
House price index (1 year lag, $100,00) 5% 2.4%
Housing bust and a symmetric negative impact
Lovenheim and Mumford ( 2013 ) 17% of the subsample: price declines Response is not symmetric
Dettling and Kearney (2013) Housing bust period (1990-96) The same tendency
More work is needed
5
What we do in this paper
Housing bust period The Japanese housing market: two decades of
price decline An asymmetric housing wealth effect
The loss aversion hypothesis and the theory of reference-dependent preferences
Households care more about housing wealth losses than equivalent gains
Budgets Utility
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The theory of childbirth and housing wealth 1
Households’ surplus from having a baby
B: the probability of childbirth
W: housing wealth, exogenous
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Depends on W
The theory of childbirth and housing wealth 2
Modified surplus functions
if
if
, : the value function, diminishing marginal utility
: a reference wealth level
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The value function
Subjective value
W𝑊∗
))
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*)=
Optimal probability to have a kid
B*
W𝑊∗
W <
W >
10
• Above the reference point: weak positive impact
• Below the reference point: strong positive impact
Asymmetric Hypothesis
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Data
Keio Household Panel Survey Large-scale panel data started in 2004 Initial sample of approximately 4,000
households aged 20-69 Sample
2004-2011 (8 waves) Childbirth behavior: Wives aged less than 50 Homeowners N = 3125
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Variable: childbirth 1
Query about a change in household member
Childbirth dummy (B): Respondents have a baby in the last 12 months
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Whether you have a baby in the last 12 months
Variable: childbirth 2
Cross-check
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Variable: housing wealth 1
Self-reported house values
How much do you think the house and lot would sell for on today’s market?
: A self-reported housing wealth in period t
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Variable: housing wealth 2
Reference point
The self-reported value in the previous year (W*t–1 )
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Variables: Other
Characteristics of married women Age, the level of completed education,
employment status before birth, duration of marriage, Number of existing children,
Characteristics of household Annual income, Husband’s labor income,
residential location
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Empirical model
Logit model
: childbirth dummy : indicator function that takes 1 if A is true
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Empirical result 1
Benchmark Symmetric response House values have
positive impact on birth
Consistent with previous literature in US
Childbirth Coeff.
Duration of marriage -0.1090*
# of existing children -0.6718**
Age 1.3119**
-2.1468**
Household income 1.0729**
Change house value from the reference
0.0932+
3,125
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Empirical result 2
Renter Symmetric response House values have
negative (but insignificant) impact on birth
Consistent with previous literature in US
Childbirth Coeff.
Duration of marriage -0.1958**
# of existing children -0.3354
Age 0.4368
-0.7929+
Household income 0.9272
Change average house value from the average reference
-0.4682
1,35520
Empirical result 3
Asymmetric response (Model [1])
Support asymmetric response hypothesis
Childbirth [1] [2] [3]
Change house value from the reference
Above () 0.0454 0.0606 0.0446
Below 0.4196* 0.4372* 0.4540*
2.92* 2.69+ 1.23
3,125 2,560 3,12521
10 million JPY 30%
Childbirth [1] [2] [3]
Change house value from the reference
Above () 0.0454 0.0606 0.0446
Below 0.4196* 0.4372* 0.4540*
2.92* 2.69+ 1.23
3,125 2,560 3,125
Empirical result 4
Robustness check (Model [2]) Exclude The result is the same
22
Childbirth [1] [2] [3]
Change house value from the reference
Above () 0.0454 0.0606 0.0446
Below 0.4196* 0.4372* 0.4540*
2.92* 2.69+ 1.23
3,125 2,560 3,125
Empirical result 4
Robustness check (Model [3]) Random effect logit
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Implication
Japan has experienced two decades of house price declines. This may have a substantially negative effect on fertility decisions of households in Japan.
Even if house wealth turn to increase, fertility rates of homeowners may not dramatically recover.
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