How does immigration affect local house prices?

A complex picture

One of the concerns raised in debates about immigration is the impact on house prices. The rising population caused by immigration is argued to push up prices as a result of increased demand. How much prices rise will depend on how quickly new construction responds to price changes, but a positive price effect is anticipated nonetheless. This has led Theresa May to claim that house prices would be ten per cent lower over a twenty year period “without the demand caused by mass immigration”.

In reality, the impact of immigration on house prices is rather more complicated. Some studies, for example, have found the local impact of immigration to be negative. This might be because of “white flight” – the aversion of indigenous house buyers to those from different countries and cultures, which causes local outmigration of existing owners and reduces local housing demand. An interesting question here is whether particular migrant groups invoke stronger levels of aversion than others. There may also be a price effect due to the value homebuyers place on neighbourhood stability: the increased churn caused by an influx of migrants may reduce property values because of the uncertainty it causes. If this were the case, we might expect the price effect to be less pronounced in areas of high employment density which tend to attract households who place a higher priority on access to work than stable neighbourhood mix. 

Data and Methods
In this study we seek to test whether there is a local house price effect of immigration, and whether the impact is positive or negative. We are particularly interested in whether different migrant groups have different house price effects. We are also interested in whether employment density mitigates the house price effect as hypothesised above. 

We use data on England and Wales to develop a model that attempts to control for reverse causation (e.g. migrants attracted to areas with high levels of economic activity and high house prices) by exploiting the fact that immigrants tend to be drawn to areas with existing clusters of households from their ethnic group. 

Findings 
Our results suggest a very modest negative house price effect at the local level, one that is more pronounced in low job density (i.e. less economically active) areas. We also find evidence of different house price effects from different migrant groups, defined by country of origin. One should treat these results with caution, however, due to the low number of observations for each group after disaggregation. In future work we aim to use datasets that allow us to look at smaller aerial units and apply quasi-experimental approaches that will enable us to explore in more detail some of the causal processes discussed above.

This work is currently available as a working paper: 

Zhu, J., Brown, S. and Pryce, G. (2016) Local House Price Effects of Immigration in England and Wales: The Role of Regional Economic Activity and Ethnic Heterogeneity 

For more information, contact Jiazhe Zhu

Photo credit: ©iStock.com/George Clerk 

Date: 
Tuesday, November 15, 2016
Authors: 
Gwilym Pryce
Jiazhe Zhu

Research Strand: