Does immigration affect residential real estate prices? Evidence from Australia

• DOI: https://doi.org/10.1108/IJHMA-10-2020-0128
• Published date: 09 September 2021
• Date: 09 September 2021
• Pages: 290-314
• Subject Matter: Property management & built environment,Real estate & property,Housing markets
• Author: Narvada Gopy-Ramdhany,Boopen Seetanah

Does immigration affect

residential real estate prices?

Evidence from Australia

Narvada Gopy-Ramdhany and Boopen Seetanah

Department of Finance and Accounting, Faculty of Law and Management,

University of Mauritius, Reduit, Mauritius

Abstract

Purpose –This study aims to investigate the effectof immigration on housing prices in Australia both at

the nationaland regional levels.

Design/methodology/approach –Data for eight Australianstates on a quarterly basis from 2004–2017

is used. To study the possible dynamic and endogenous relationship between housing prices and

immigration,a panel vector autoregressive error correctionmodel (PVECM) is adopted.

Findings –Analysis of the results indicates that in the short run immigration positivelyand significantly

affects housing prices, whereas in the long run no significant relationship was observed between the two

variables. From the regionalbreakdown and analysis, it is discerned that in some states thereis a significant

and positive effectof immigration on residential real estate prices in the longrun. Causality analysis confirms

that the directionof causation is from immigration to housing prices.

Practical implications –The study illustratesthat immigration and interstate migration,as well as high

salaries, have been causing a rise in housing demand and subsequently housing prices. To monitor

exceedinglyhigh housing prices, local authoritiesshould be controlling migration and salarylevels.

Originality/value –Past researchstudies had highlighted the importance of native interstatemigration in

explaining the nexus between immigration –housing prices. In this study, it has been empirically verified

how immigration has been affecting the locational decisionsof natives and subsequently how this has been

affectinghousing prices.

Keywords Australia, Granger causality, Immigration, Housing prices, States, Interstate migration,

PVECM

Paper type Research paper

1. Introduction

The globalizationof the economy is an important aspect that could explainthe growth in the

level of worldwide migration. The UN International Migration Reports 2017/2019 note that

migration has been increasing, for example,in the year 2000, international migration was at

173 million and it increased to 220 million in 2010 and further increased to 272 million in

2019. Different factors have contributed to these migration movements, for example,

political instability and civil wars in the domestic countries, foreigners seeking better job

prospects or a better education system.In general, the native country attracting immigrants

is perceived as offering better living conditions. On the other hand, some countries have

been encouraging migration to increase their population size, to lessen their ageing

population issue or to attract skilled or cheaper labor. The domestic countries have been

formulating and adapting their migration policies as per their needs. For instance, in

Australia, which remains one of the countries welcoming the highest number of migrants [1],

initially foreigners could mainly apply for permanent visas and then the policies were modified

to allow for temporary visa allocations.

IJHMA

15,2

290

Received28 October 2020

Revised10 February 2021

Accepted15 February 2021

InternationalJournal of Housing

Marketsand Analysis

Vol.15 No. 2, 2022

pp. 290-314

© Emerald Publishing Limited

1753-8270

DOI 10.1108/IJHMA-10-2020-0128

The current issue and full text archive of this journal is available on Emerald Insight at:

https://www.emerald.com/insight/1753-8270.htm

It is noteworthy that past studies relative to immigration were mainly geared toward

finding the nexus between immigration and the labor market (Scheve and Slaughter, 2001;

Card,2001, 2005;Dustmann and Glitz,2005, 2011;Card and Lewis, 2007;Manacorda et al.,

2012;Ottaviano and Peri,2012;Dustmann et al.,2013, etc.). Given the growing importance of

worldwide migration, the latter should be impacting the domestic country beyond its labor

market and over the past decade, a few research studies [2] have been conducted to discern

the impact of immigration on the housing market in different contexts such as the USA

(Saiz, 2007;Saiz and Wachter, 2011), UK (S

a, 2015;Braakmann, 2019) and Canada (Akbari

and Aydede, 2012) and the results are at best mixed. Theoretically, it is stipulated that the

presence of more immigrants in a country or region should lead to an increase in housing

demand and this could result in an increase in housing prices. Larkin et al. (2018) in their

meta-analysis posited that an increase in housing demand should lead to an increase in

housing prices. However, rising levels of immigrants in particular regions [3] has also been

argued to cause natives to shift to other regions, thus housing demand and consequently

housing prices may not necessarilyincrease (S

a, 2015).

The main objective of this study is to empirically assess the impact of increased

migration levels on housing prices. Past studies on migration and residential real estate

prices (housing prices/rents) have reported mixed results where immigration has either

impacted on residential prices positively (Saiz,2003;Ottaviano and Peri, 2006;Mussa

et al., 2017) or negatively (S

a, 2015;Green, 2018;Zhu et al., 2018) or no significant

relationship was found between the two variables (Saiz and Wachter, 2011;Braakmann,

2019).

Following an analysis of immigrationon housing prices at the national level in Australia,

a regional breakdown is used to discern if net overseas migration (NOM) has a different

consequence on the housing marketsin the different states. Past studies (Zhu et al., 2018) on

migration have demonstrated that immigrants tend to cluster, and therefore, if housing

prices are being affected by their arrival,it should be more on a regional basis rather than a

national basis. It is noteworthythat, some studies on the link housing prices-migration have

used both NOM and net interstate migration of natives (NIM) as explanatoryvariables and

established how these affect housing prices (S

a, 2015;Rosa Sanchis-Guarner, 2017).NIM is

also included in our analysis to take intoaccount how immigration influences the location of

natives.

Over the past decades, the proportionof immigrants within particular Australian regions

has increased by quite consequential amounts (for example, in Sydney and Melbourne).

Recently, the Australian Government has suggested that migration restrictions might be

implemented in particular regions following the concerns of residents relative to rising

housing prices, relatively stagnantsalaries or even traffic issues. A regional analysis of the

data is advocated as the immigrants are usually spatially concentrated (Green, 2018),

therefore within the same country the nexus between immigration and housing prices in

different regionsmight not be the same.

Australia is chosen as the study context given the importance of immigration in the

country, with a reported immigrant share over the total population standing at around

29.7% in 2019. Available statisticsfrom the Australian Bureau of Statistics (ABS) show that

the Australian populationhas undergone a consequential increase of around 40% from 1990

till date. This is mainly because of NOM, for example, in 2017, population growth was at

388,000, out of which 240,000 was from NOM. Data from the ABS also illustrates that

residential prices have undergonesignificant price increases over the past years, with mean

residential pricesin Australia increasing by approximately 35% from 2013 till 2017.Most of

the studies (Karantonis and Ge, 2007;Otto,2006;Hatzvi and Otto, 2008) on the determinants

Residential

real estate

prices

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