The Australian birth rate has reached a historic low.

OK, technically we are referring to the total fertility rate (TFR), but in the public discourse the phrase “birth rate” tends to be used so we shall go with that.

The fall to 1.5 births per woman is even lower than what most demographers expected. The trend is no surprise, whatsoever.

What does surprise some people is that we are still recording high total numbers of births.

It’s the turn of the biggest generation, Millennials, to make babies. If a huge number of people make babies at a record low rate, we still end up with maternity wards that never see a quiet day.

Why do Australians make so few babies?

It’s just too expensive. Australians want to offer their kids the best possible upbringing. That means a bedroom for each child, childcare, holidays, toys, and activities. Housing costs are so high that almost all households now depend on dual incomes.

This means childcare fees are inevitable. In Germany, people complain bitterly about childcare costing almost $300 per month in some expensive areas. The average childcare centre costs around Australia are $675 per week if you don’t receive subsidies.

Even on a high income the $2700 per month is hard to swallow.

Now let me introduce some anecdotal data. I’m 41 and dad to two young boys under five. This means my wife and I constantly hang out with other parents of young kids. It’s very common to hear that the parents would love to add a second or third child to the family but due to financial constraints they decide against this. These topics are openly discussed without any coyness.

Mind you, I live in Northcote, a gentrifying inner suburb of Melbourne. Most families here aren’t loaded but are certainly well off. I can only assume that in areas where financial pressures are felt more intensely, family sizes are affected even more. In the well-heeled areas high childcare and housing costs do not stop couples from having the first child but in a very real way it stops people adding the second or third child to the family.

Other reasons for having fewer babies have also intensified. The average age of first-time mothers continues to climb upwards and now sits at 32. In 2000, first-time mums were aged 30 and in 1970 they were under 26. The window of opportunity to have multiple kids keeps narrowing. As more women enter the university system, as even childless households rely on dual incomes, as female workforce participation continues to climb upwards, and as family planning (contraception) remains affordable and easy, birth rates will continue to drop.

It’s hard to collect meaningful data on this, but more people report that they choose to stay childless for economic or environmental reasons too.

What could halt the falling birth rate?

Let’s hope we don’t hear any politicians calling for baby bonuses.

Baby bonuses don’t lift the birth rate in the long run. If you are lucky as a government, your cash payment might encourage a couple to bring a birth forward. In the long run, baby bonuses do not increase births . The uptick in the Australian birth rate around 2008 is not because of the Howard government’s handouts but due to a general sense of optimism in the country triggered by a juicy mining boom and favourable global trade conditions.

To drive births up, we would need to change the macro-economic climate in favour of young families. Universal free childcare is a government intervention that is linked with stabilising fertility rates. That research comes from the Nordic nations, all of which still have a birth rate well below the replacement rate of 2.1 children per woman.

If we were to introduce universal free childcare while also making housing much more affordable, we could stabilise or even increase the birth rate. Any meaningful attempt to increase the birth rate would certainly be expensive.

The differences in birth rates between states are pretty stark. We don’t have any data on why that might be the case. A political explanation might come to mind. The two states with the biggest share of Millennials and the two states with strong left-leaning young people record lower birth rates than the rest of the nation. Feel free to add your own speculation.

Are low birth rates a problem?

For the sake of the argument, let’s ignore the personal wishes of families who want more kids but for financial reasons stop having kids. Should Australia be concerned about ever falling birth rates?

A falling birth rate means fewer workers, and it means fewer people to grow the economy. As a migration nation, Australia can simply import more people from overseas to amp up the workforce.

Economically speaking this might be the wiser choice. People cost the state money from before the day they are born until the day they start paying taxes (they start costing the state money again once they are retired). It’s rather clever to grow a country’s population via migration rather than natural increase (more births than deaths).

The costs of raising and educating migrants was carried by another nation. International students, one-in-six of whom become permanent residents, even pay Australia massive fees for the privilege of being educated here.

Even an attractive migration nation like Australia can’t rely forever on importing young people from overseas. The global population of migration age (18-39) will start to fall in about 20 years.

The competition for skilled workers will increase. At some point, Australia will struggle to import 250,000 people each year. This demographic reality means that sooner or later our nation must reinvent itself and establish an economic model that relies on fewer workers to create GDP and look after an ever-aging population. The good news is that Australia ages much slower than other developed economies.

Australia should carefully monitor how other economies are dealing with falling birth rates, ageing populations, shrinking workforces and then copy-paste the best solutions. In the meantime, Australian young families wouldn’t complain about universal free childcare or lower housing costs.

Demographer Simon Kuestenmacher is a co-founder of The Demographics Group. His columns, media commentary and public speaking focus on current socio-demographic trends and how these impact Australia. His podcast, Demographics Decoded, explores the world through the demographic lens. Follow Simon on Twitter (X), Facebook, LinkedIn for daily data insights in short format.