Jun 26, 2008

Ex-Expats Drive Up House Prices, Not Immigrants

Brian Fallow covers several important issues in his opinion piece in the NZ Herald today. We will cover tow of his themes. The first is the assumption that high immigration inflows are responsible for house price inflation.

Brian reviews work done by Steven Stillman and David Mare of the excellent Wellington think tank Motu, on this issue. The conclusion is an interesting one

"Our overall results raise doubts about whether the strong positive correlation that exists between immigration and house price appreciation over the time at the national level is in fact causal," they conclude.
Instead it may be that there are other factors which raise both immigration and house prices.
In other words immigrants are more likely to come to New Zealand when the country is doing well and house prices are on the rise.

They reach another interesting conclusion

"On the other hand, there is a strong positive relationship between inflows of New Zealanders previously living abroad into an area and the appreciation of local housing prices, with a 1 per cent increase in population arising from higher inflows of returning Kiwis associated with a 6 to 9 per cent increase in house prices."
This theme - that it is not immigrants driving up house prices, if anything it is returning expatriates - holds good when they tighten the focus to individual neighbourhoods and control for other factors which make one neighbourhood more or less attractive than another.