“They don’t want to have kids because it’s too damn expensive,” the podcasters say to explain why millennials and Generation Z are having so few children.
There are plenty of reasons to doubt this simplistic explanation for our record-low birth rates.
First, the birth rate was higher during the Great Recession than in the golden days of 2019 or in today’s pretty good economy. Second, millennials and Gen Z aren’t poorer than Generation X was at their age, and Gen X had more children. Also, by official measures, raising a child has actually become more affordable for the average male earner since 2010.
It’s easy, then, for old folks to roll their eyes and wave away this complaint. So much of what today’s parents, or nonparents, think is essential is unnecessary, or even harmful. Parents helicopter over their children, put them in travel baseball, and hire them math tutors in fifth grade. Some Gen Zers seem to think each kid needs her own bedroom.
Also, there’s plenty of evidence that what’s deterring today’s 20-somethings and 30-somethings from starting families is their own neurosis, aversion to commitment, and almost philosophical opposition to sacrificing oneself for another.
But we shouldn’t go too far. While affordability is overstated as a deterrent from family formation, in one massive way, it really does seem to be a factor.
Right now, it is much more expensive to own a home than at any time in modern American history. Common sense, bolstered by research, suggests that this cost is deterring young people from getting married and having kids.
Thankfully, both liberal and conservative commentators and policymakers are trying to push past a persistent “Not In My Back Yard” instinct in local government and secure policies that will increase the supply of housing.
More homes of all sorts will generally make housing more affordable because increasing the supply of a good tends to decrease the price. But there’s still a debate to be had, even among the “Yes In My Back Yard,” or YIMBY, folks: Do we want just any sort of housing, or do we specifically need single-family homes? Or something in between? And what is the role of the government in all of this?
The baby bust is the most important story of the next 30 years. Housing is the most important cost factor in the baby bust. So the topic of family-friendly housing is perhaps the most crucial economic topic of the day.
More expensive homes, fewer families
House prices in the United States have skyrocketed since the pandemic. Housing prices have risen 52% in the five years since July 2020, according to the Federal Housing Finance Agency’s house price index. That’s more than it rose throughout the entire 1990s.
One result: A house now costs nearly six times the salary of a middle-class man. It used to be about three times.
Those increases reflect only the purchase price. The recent increase in mortgage rates means the price of buying and owning a home, which many people want to do before starting a family, is even costlier.
The cost of paying your mortgage, insurance, and taxes increased nearly 4% faster than inflation last year. That’s the median price. For new entrants, a monthly payment might be 50% more expensive to own once you consider the higher purchase price and higher interest rates.
It’s not hard to imagine how this would deter family formation and keep families small. Also, there are data to suggest that housing affordability, more than other sorts of affordability, affects marriage and birth rates.
One study in England found that “a 1 percentage point reduction in the monetary policy rate … leads to a 5 percent increase in the birth rate among families at an adjustable rate.” Another study from the last decade found that “a 10 percent increase in home prices leads to a 1 percent decrease in births” among those who don’t yet own a home. The effect was less about deterring a first child than preventing subsequent children.
Why is home ownership so important to parents or would-be parents? The answer probably lies in the combination of flexibility and permanence.
As your family grows, you may need to convert a walk-in closet into a nursery. You may want to convert your garage into a granny flat. You may need to turn two bedrooms into a large barracks room for all three boys, or split a basement up into three tiny bedrooms. You probably cannot do these modifications in a home you’re renting.
More importantly, if you own a home and have a fixed-rate mortgage, you know that, absent some career or financial catastrophe, you can stay there for decades. Such permanence is essential to raising a family, a multidecade undertaking, much more than it is to an individual or a childless couple.
Because our rising housing prices are contributing to our falling birth rates, what can be done?
In the past, we’ve tried subsidizing homebuyers. That ended in the financial crisis, which arguably kick-started our baby bust.
Rather than subsidize demand, the simplest answer seems to be increasing the supply.
YIMBYism is not enough
Liberals call it “abundance.” Conservatives talk about “deregulation.” The idea is that we simply need more houses.
Obviously, many people object to this, especially in local governments. But these days, the YIMBYs seem to have the upper hand over the NIMBYs, and state governments are passing laws aimed at removing barriers to home building.
A greater supply will mean lower prices. More affordable homes should mean more and bigger families. That’s generally true, but there are wrinkles.
Tokyo is an example of where maximizing housing supply keeps down prices but may simultaneously suppress birth rates. “Vertical density,” argues demography researcher Daniel Hess, drives down birth rates. A studio apartment or a one-bedroom in downtown might be fun and convenient for work, but it’s not optimal for raising children, the data suggest.
As demographer Lyman Stone puts it, “The best evidence we have suggests that living in dense environments causes lower fertility.”
The optimal density for a family is somewhere between Wyoming and Tokyo. It’s probably pretty close to dense suburbia — tight enough that you have neighbors, parks, and stores nearby but not so tight that a second or third bedroom is unaffordable.
So we need more supply to reduce prices, but too much density seems to be anti-natal. What are we to do?
Apartments vs. homes
At the heart of this issue is the question of what sort of homes we need more of. The simple answer is “all sorts.”
If a city gets more one-bedroom apartments, then empty-nesters have more places to move, likely freeing up single-family homes. Also, a one-bedroom apartment is a fine place for newlyweds to live and take a job in a new city before looking for a bigger place.
But still, Americans prefer single-family homes. While 59% of adults under age 55 live in a detached single-family home, a full 79% wish they did, according to a recent study by the Institute for Family Studies. A vast majority of apartment-dwellers wish they had their own home with a yard.
This is what Americans want, but markets are going in the opposite direction. From the 1980s through the mid-2000s, only about 5% to 10% of new housing units were in large apartment buildings (20 or more units). Since then, the percentage has skyrocketed, and these days, it’s about 33%. The square footage of new apartments is also shrinking.
So right when the baby bust is becoming clear, we are getting more and more family-unfriendly housing.
Now, in these social shifts, the causality always goes both ways: Family-unfriendly homes suppress family formation, and a more childless place will see fewer family homes built.
But as we grapple with density, one key question is whether apartments are inherently family-unfriendly.
At IFS, Stone and developer Bobby Fijan (a ringleader in the slightly weird world of “floorplan Twitter”) argue that apartments can be family-friendly and that it’s worth the effort to get more of them.
Apartments don’t necessarily need to be massive to fit a growing family. They mostly need more walls. Parents mostly want a second and third bedroom in an apartment, even if that comes at the expense of the size of the living areas and the master bedroom. They also don’t want to live on the 10th floor.
One way to read the Stone-Fijan study is that you could combine density and family-friendliness by building three-story apartment buildings with three small bedrooms.
Sure enough, Stone and Fijan found “apartments with more bedrooms have lower vacancy rates [and] lower turnover rates.”
This is an argument for developers to listen to. Yes, filling a four-story building with 30 studio apartments will maximize rent-charged-per-square-foot, but filling the lower floors with a few three- and four-bedroom family apartments could be more profitable by reducing vacancies and missed payments.
To get more buildings like this, Stone and Fijan argue for some regulatory fixes, including repealing the two-staircase mandate and setting parking-space requirements by the unit rather than by the bedroom (since little Jackson and Emma don’t need their own parking spots for a few years).
Ed Pinto, my colleague at the American Enterprise Institute, still argues that the right mix of density and family-friendliness involves townhomes and small single-family homes on modestly sized lots.
Pinto pointed out that among married families with children, even low-income families, they opt for single-family homes.
If you’ve raised children, you can see why a small three-bedroom home might be more desirable than the same-sized three-bedroom apartment.
For one thing, you don’t feel bad when your children are crashing around in your living room if nobody lives below you. On the flipside, naptime is a dicier thing if your upstairs neighbor might be vacuuming at 1 p.m.
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Also, family homes need a release valve where kids can expend energy and not be neat and clean: a small backyard or your own basement can provide such a release valve, and thus is more valuable to parents than to nonparents.
At times, the research and the intuitions on family-friendly housing seem to contradict. That’s a good reason to do more such research. If we’re going to have more families in the future, they’ll need somewhere to live.
