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Negative Birth RatesThe United States and Canada have negative birth rates. 

Birth rates should not be confused with population growth, which depends on both birth rates and immigration.  Both countries have positive population growth (if barely) last year due to immigration: growth rates were 0.7% in the U.S. and 1.3% in Canada .

The birth rate in the U.S. in 2011 (the last year birth rate data is available from the World Bank) fell to a record low of 12.7 births per 1,000 people, down slightly from the previous record low in 2010 of 13.0.  In Canada, the birth rate was even lower: 11.0 births per 1,000 people in 2011, down from 11.1 in 2010.  Estimates for 2012 are that the birth rate dropped to another low: by one more detailed analysis of births per 1,000 women aged 15-44, this birth rate dropped from 63.2 in 2011 to 63.0 in 2012. 

A country’s total fertility rate, alternatively, measures the average number of children born to each woman over the course of her lifetime; a fertility rate of roughly 2.1 is required to maintain a stable population (2.1 instead of 2 allows for mortalities).  In the United States, the total fertility rate in 2011 was 1.89, and in Canada it was an abysmal 1.61.  Estimates are that this rate dropped to 1.88 in the U.S. in 2012, although early estimates show the Great Recession's negative pressure on birth rates will finally reverse in 2013, to an estimated 1.90.

Among whites in the United States, the birth rate has now fallen below the death rate, a condition referred to by demographers as "natural decline"; more whites are dying than are being born.  The average age of American whites is also older, at 42 compared to 34 for Asian Americans, 32 for African Americans and 28 for Hispanic Americans.

As published earlier this year, over a third of the counties in the United States are experiencing natural decline, as many rural and northern areas of the country are failing to replenish their population. 

Birth Rate MapThese demographic trends do not occur in a vacuum.  Birth rates have particularly declined since 2008, a conspicuous year economically, and history has shown that birth rates suffer during recessions (for example the Great Depression caused a massive drop in birth rates).  But birth rates have been falling on average ever since the baby boom of the 1950s, and while it has particularly suffered during economic crises (such as we saw in the 1970s), the overall trend among developed nations is a downward birth rate as it grows more expensive to raise and educate each child.

Why is this a problem?  Less people means more resources to go around, right?

Wrong.  Advanced economies like the U.S. and Canada are dynamic, based on innovation and productivity, as opposed to relatively static economies based on a fixed amount of resources (such as oil in the ground) creating all the wealth.  Worker productivity is such that the average working citizen creates far more value than they cost society.  But shrinking populations mean less demand for, well, everything.  Less demand means production will slow, which means less jobs, less innovation, less economic impetus. 

But where the collapse in demand really wreaks havoc is on real estate markets and particularly neighborhoods already on the margins of society.

A smaller population has less demand for housing, leaving abandoned properties and all the problems that come with them: blight, crime, infestations and so on.  Less demand also means lower property values.  It means shrinking rents, which means less people buying and maintaining quality rental properties, so quality of rental housing declines.  It means mortgage defaults, foreclosures and evictions in the case of foreclosed rental properties.  It means drastically less new construction, a sector that is a massive source of jobs in the current U.S. and Canadian economies. 

And the jobs picture grows darker from there: young people tend to be behind most innovations and emerging industries, and tend to require younger workers who are flexible enough to learn all the associated new skills.  Working-age people are also the ones feeding tax revenue into social welfare programs like Medicare and Social Security – it does not take a PhD in demography to guess what happens when twice as many retirees are drawing benefits supported by half as many workers. 

Japan Population Economy CycleThere are multiple developed nations that are no stranger to collapsing fertility rates.  Japan has suffered shrinking fertility rates for generations; the last year Japan saw population-sustaining fertility was 1973, with a fertility rate of 2.14.  Is it surprising that their gross domestic product started declining 21 years later, in 1994, as smaller generations of young people began entering the workforce?

Japan has suffered two “lost decades” of economic floundering since then, and young adults today are disillusioned, lonely, poor and pessimistic.  By late 2013, the social science data has become plentiful that shocking numbers of young adults in Japan have quite literally lost all interest in having sex or relationships.  Survey data shows that 45% of young women aged 16-24 "were not interested in or despised sexual contact", and a full 25% of young men felt likewise.  A third of Japanese men under 30 have never dated a woman.  Ever.

A cyclical pattern begins to emerge: as it grows too expensive to raise multiple children in developed countries, young people choose to have fewer offspring.  The economy contracts as smaller generations of young people emerge into adulthood while larger, older generations live longer and disproportionately consume resources in the form of social welfare programs and health care costs subsidized by the healthy.  Fertility rates continue to falter alongside the stagnating economy, as young people struggle economically.

What can be done to combat shrinking birth rates and population growth? 

One option is to do nothing.  There are some advocates who do not object to a world with zero population growth, and would happily trade the economic concerns for the environmental benefits of zero population growth. 

Another possibility is to encourage population growth through immigration.  Canada has seen some success in courting immigrants, with its more open immigration policies than the United States (remember, the fertility rate in Canada is lower than the U.S., but their population growth last year was higher).

Other options include promoting higher birth rates through legislation, regulation and tax benefits.  China, for example, could further peel back its infamous one-child policies, to attack its falling fertility rates.  France has created an extensive (and expensive) system of benefits for families with more than two children.  The United States could consider greater tax benefits for families with more children (such as a sliding scale of dependent deductions – the deduction for each child growing higher the more children in the household).   Regulatory changes might include mandatory minimums for maternity/paternity leave (which, if equal, may also boost workplace equality), and caps on state university tuition increases.

But if shrinking fertility rates in the U.S. and Canada do one day lead to negative population growth, the inevitable results are a pinched workforce as larger generations retire, and the contraction of demand leading to crashes in real estate markets and the economy generally.

Birth Rates Over Time & Implications for Real Estate Markets

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