Effects of Immigration on Local Housing Markets

Abstract

This chapter surveys the international evidence regarding the impact of immigration on local housing markets. The theoretical framework provided highlights with the complexity of housing markets and the importance of distinguishing between the ownership and use of the stock of dwellings vis-à-vis the residential real estate market. Evidence from eight countries, and from meta-analysis shows that immigration leads to higher house prices and rents, and lower housing affordability. On average, a 1% increase in immigration in a city increases rents by 0.5–1%, the effect on prices being about double that. There is a large variance around this, related inter alia to the period, spatial scale and local economic conditions. Additionally, the housing impact of immigration depends on the demographic and economic composition of the immigrant flow, on macroeconomic conditions and expectations, on the institutional factors influencing the price elasticity of the supply of new dwellings and on how the native born react to immigration. The tendency of the native born to move from areas where migrants settle can lead to relative house price declines in these areas. Overall, immigration has been a minor contributor to sharply rising house prices in contemporary fast growing agglomerations.