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How a China baby boom could make homes more affordable

November 18, 2013, 8:39 PM UTC

FORTUNE – Even those who know little about China have heard of its policy limiting most couples to one child. The 1980 law in the world’s most populous country was originally intended to tame fears that a surging population would suck up resources and hurt growth. Birthrates plunged to 1.64 children per woman in 2011 from 4.77 in the 1970s, but the policy has led to countless troublesome consequences over the years, including forced sterilizations and abortions and a shortage of women in a country that overwhelmingly prefers boys over girls.

Last week, leaders pledged to relax the one-child policy, allowing couples to have two children if one parent is an only child. Currently, couples are restricted to one child unless both parents are only children and rural families are allowed to do so if their first child is a girl. Talk of the policy change comes as China seeks to address a looming shortage of workers in the face of a rapidly aging population. Such demographic changes could also ripple across an unexpected part of China’s economy — its booming housing market.

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Property prices have spiked dramatically, making it unaffordable for many Chinese to buy. And studies have found that the rapid rise of China’s home prices is linked to its widening gender imbalance. Because there are many more men than women (a ratio of 1.15 men of marriage age of 15 to 30 years old for every woman), China’s dating scene has become ultra-competitive.

While nothing says “Will you marry me?” quite like a shiny diamond in the U.S., an engagement in China typically comes with a home. To be considered marriage material, men are expected to either own property or have enough for a down payment; as a result, between 2003 and 2009, as much as 48% (or $8 trillion worth) of the rise in property values across China’s 35 major cities is linked to the nation’s gender imbalance, according to a 2012 study by Columbia University professor Shang-Jin Wei.

With China easing its one-child policy, however, demand for housing could eventually fall.

Wei cites two reasons: It could take another 10 to 15 years before China sees any fundamental changes, but giving more couples a chance to have two children would help balance the male-to-female ratio. And if more men can find wives, it would help ease China’s super competitive marriage market.

Also, raising the birthrate would compel citizens to save less. Because China’s government invests so little on medical coverage, education, and other social safety nets, most Chinese save overwhelmingly more than they spend. They often store their money by buying up real estate, but with more children, couples would need to spend more. More than that, such couples would enjoy a wider safety net in a country where children are expected to take care of their elderly parents (Yup, that’s right — in China, visiting mom and dad is the law).

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It’s unclear how Chinese families would respond to a relaxed policy. After all, rising housing and education costs have made couples in urban areas prefer having only one child.

It has been estimated the policy change could add 1 to 2 million more births every year, in addition to the approximately 15 million births a year today. Wei says as incomes rise in the world’s second largest economy, it’s likely that more couples will have more children.

All this could make homes more affordable over the next several years; that is, of course, if the Chinese choose to have more babies.