You know the old saying about having a hammer and everything looking like nails? I was reading an article in the Journal of Law and Economics about why housing prices in Manhattan are so high, and  I thought, "Omigosh! The answer to the demographic implosion." Since my hammer happens to be sex and marriage, even an economics article reminds me of sex. So bear with me. I’ll explain what the article had to say about housing prices. Then I’ll tell you what it has to do with sex.

The authors, Joe Gyourko, Edward Glaeser and Raven Saks, explain that the high cost of housing in Manhattan isn't as simple as a fixed amount of land. Developers can still produce more housing units by putting more stories on existing buildings. Extra stories don’t require any extra land.

How expensive is Manhattan real estate?

The median value of an owner-occupied housing unit in Manhattan rose from $245,633 in 1980 to $377,246 in 2000 (both in 2002 dollars), which implies a real appreciation rate double the national average for the same twenty year period. Another way to look at it: for condominiums sold in 1984, the price per square foot was $373. By 2002, the mean sales price (in constant 2002 dollars) had soared to $621 per square foot.

Obviously, increases in demand are a part of the picture. But, why didn't supply respond enough to keep the prices stable? In spite of skyrocketing prices, the housing stock has grown by less than 10 percent since 1980. Tens of thousands of apartments were built in Manhattan in the 1950s, and the prices remained flat.

Increases in production costs are nowhere near enough to account for price increases. Gyourko, an economist at the University of Pennsylvania and his co-authors at Harvard, estimate that construction costs of the typical Manhattan apartment was at most $300 per square foot, about half the average sales price. This gap between construction costs and price cries out for an explanation.

So why have housing costs in Manhattan risen? The authors believe the answer lies in housing regulation. They cite things like zoning regulations, use permits, and building inspections. They also point to landmark preservation requirements, which can absorb resources in public relations battles, and trigger expensive construction delays.

Now, the juicy part: what does this have to do with sex?

As regular readers of this column know, I am very concerned about the low birth rates in modern countries. One of the contributing factors to low fertility is delayed marriage and child-birth. And one of the contributing factors to delayed marriage is the high cost of setting up an independent household. The biggest expenses for young people are taxes, student loans, and housing.

Even if you aren’t convinced, as I am, that below replacement fertility levels are a problem, there are more personal reasons to worry about it. Look at it this way: our bodies are physically ready to reproduce when we are in our teens. The average age of first menstruation is now 12.5, down from 16.2 in the nineteenth century. But the age at first marriage is 25.2. We aren’t ready for economic independence until our late twenties.

That means that we may have a gap of 10 to 15 years between the time we are biologically ready and the time we are economically ready. All those raging hormones are trying to get us to reproduce. That gap between the age at first menses and the age at first marriage creates, shall we say, a certain tension in society.

Right now, we manage that tension through contraception for the middle class and welfare for the poor. Continued...