Finance and Welfare: The Effect of Access to Credit on Family Structure

Abstract

There is a large debate over the welfare effects of the early 2000s housing boom and bust. One potentially important welfare effect is the impact of mortgage credit expansion on family structure. Exploiting pre-housing boom variation on the distribution of old homeowners who live alone and are older than 65, I conduct within-county analysis with zip code level data to causally identify the effect of access to credit on fertility outcomes through a channel associated with a more efficient reallocation of the existing housing stock among households. I examine two other housing channels, house wealth gains and new construction, and show that the most relevant channel is the reallocation, which allows young households to access space by either moving to larger homes or achieving homeownership earlier in their life-cycle. A one standard deviation increase in reallocation leads to a 6.4% increase in fertility from 2000 to 2006. The same increase in house prices leads to only a 2.7% increase, and in new construction leads to a 1.5% decline in fertility from 2000 to 2006. I estimate that approximately 500,000 babies were born between 2000 and 2006 because of the reallocation channel.