No flat, no child in Singapore: Cointegration analysis of housing, income, and fertility

A key feature of the demographic transition in prosperous East Asian and other developing Southeast Asian states is fertility decline. Various pro-natalist policy measures, including baby bonuses and universal child care, have been undertaken by governments in the region, often with disappointing results. Like other social institutions in modern societies, housing can play a vital role in shaping fertility decisions, but its effect on fertility has largely remained unexamined. The ambiguous effect of housing affordability found in existing literature constrains the ability of governments to truly tap in to its potential to curtail fertility decline. This paper seeks to address this gap by empirically examining this often-neglected relationship between house prices and fertility rates. It examines the relationship through the mechanism of housing wealth formation in Singapore, a country with one of the lowest replacement levels in the region but also with one of the largest public housing markets in the world. It uses the resale price of public flats to test whether this wealth formation can potentially increase the likelihood of having more children. By doing a cointegration analysis of housing, income, and fertility, the paper confirms the "no flat, no child" belief prevalent among young Singaporeans. It finds a negative long-run effect: a unit increase in the prices of resale flats reduces the total fertility rate (TFR) by 0.0036, statistically significant at 1%. Income is also found to negatively affect fertility. The variables included in the error correction model are also sensitive to disequilibrium. The resale prices also Granger cause the TFR both in the short and long run, and the effect is bidirectional. The paper emphasizes how imperative it is for policymakers to seriously consider this effect in crafting housing and population policies. Pro-natalist measures may prove inadequate if other aspects of family living in Singapore do not significantly change. Governments faced by a steady fertility decline need to consider how housing affordability can be used as an instrument to drive up fertility rates.