Benjamin Couillard is a PhD candidate at the University of Toronto whose research looks at things like residential choice and housing supply. And in this recently published paper, he studies the causal effects of rising housing costs on fertility. Here's what he found when examining US Census Bureau data:

...rising [housing] costs since 1990 are responsible for 11% fewer children, 51% of the total fertility rate decline between the 2000s and 2010s, and 7 percentage points fewer young families in the 2010s. Policy counterfactuals indicate that a supply shift for large units generates 2.3 times more births than an equal-cost shift for small units. This analysis concludes that the supply of housing suitable for families can meaningfully contribute to demographic sustainability.

Intuitively, it makes sense that rational adults might consider where they would put a child if they had one, or had one more, and consider the cost of this incremental space. Housing is expensive in major urban centers. Perhaps it's no surprise that Canada, which is known for its broadly unaffordable housing, has fallen into the "ultra-low fertility" category.

But I think this fertility-housing relationship is an important one to call out when considering appropriate public policies. Housing is often viewed through the lens of what bad things will happen if we build it. That's why we do shadow studies, force stepbacks, charge development charges (impact fees), and the list goes on.

What is harder to grasp is what happens when we don't build new housing. Most — or at least many — seem to agree that not building enough housing hurts overall affordability. But what this study also demonstrates is that not building enough family-sized housing is bad for making babies!

This has all sorts of socio-economic repercussions, one of which is that a country now has to rely more heavily on immigration in order to offset a shrinking population base. It becomes a larger economic problem. When framed this way, it makes me wonder: why do we tax new family-sized homes the way we do?

An alternative approach to encourage more infill family housing might be to eliminate development charges, building permit fees, parkland fees, and as many other government fees as possible on all three-bedroom or larger homes. And the reason you would do this is because the economic and demographic cost of not building is even greater.

Based on the work of Couillard, we know at least one of the outcomes: more babies.

Cover photo by Lotus Design N Print on Unsplash

The US just announced that they are working on a plan to introduce 50-year mortgages. I don't know what this plan entails, but my first reaction to the headline was: “Yeah, this is a bad idea.” But then I thought to myself, why is a 50-year amortization period too long? And is there any magic to 25- and 30-year mortgages?

At the most basic level, you could think of it this way: the average life expectancy of both sexes in America is currently 78.4 years. That means the average American would need to buy a home — with a 50-year mortgage — at 28.4 years old in order to fully pay it off by the time they die. At that point, why not rent?

A more rigorous analysis of amortization periods would likely involve a myriad of trade-offs related to housing affordability, homeownership rates, asset-price stability, household debt, overall financial risk, and other factors. But the primary feature of a long-ass mortgage is that it's alleged to make homeownership more attainable.

The obvious benefit of a 50-year mortgage is that it lowers a borrower’s monthly payment. For example, an $800,000 mortgage at 6% would create the following payments:

• 25-year amortization: $5,154 per month

• 30-year amortization: $4,796 per month

• 50-year amortization: $4,211 per month

But it's important to keep in mind that this is a synthetic affordability solution. It does not address fundamental constraints such as land use, zoning, construction costs, and the overall supply of new housing. Here's an excerpt from a speech that Carolyn Rogers, Senior Deputy Governor of the Bank of Canada, delivered last year:

"...we need to resist the temptation to try to solve the housing affordability challenge by tinkering too much with the mortgage market... leaning too much on measures that reduce the short-term cost of financing could have long-term impacts on the financial health of households, the mortgage market and the economy."

The corollary to these lower monthly payments is that if you can afford a monthly payment of $5,154, you now have the option of taking out a bigger mortgage with a longer amortization period. With a 50-year amortization, that same monthly payment could support a $979,173 mortgage.

But what increased leverage does is drive up home prices even further, in the same way that lowering interest rates creates upward pressure. Imagine that mortgage rates drop from 6% to 3%. This same $5,154 monthly payment would now carry a $1.6 million mortgage with a 50-year amortization period.

I'm not an economist and, from what I can tell, there's no perfect amortization period. But there does appear to be a Goldilocks zone that balances a number of the trade-offs, and it is somewhere between 20-30 years. In fact, as recently as 2008, Canada offered government-backed 40-year mortgages. But then a consensus emerged that they were "really not in the best interest of Canadians."

I know that lots of people would love to own a $2 million home. But economic history has shown us that 50-year mortgages are likely to raise home prices for everyone, slow equity build-up for owners, and increase overall financial risk in the system. As Howard Marks once wrote in one of his memos, “There’s no free lunch in economics."

Cover photo by Kimson Doan on Unsplash