Home Away from Home? Safe Haven Effects and London House Prices

Abstract

The infrequent nature of crises means that pure time-series methods struggle to distinguish the effects of capital flight on asset prices from a wide range of alternative drivers. We present a new cross-sectional approach, which is motivated by the insight that investors may have different preferred habitats' within a broad asset class. We apply this approach to understand whether foreign capital is responsible for residential real estate price movements in global cities such as London and New York, especially during crises. Using large databases of housing transactions over the past two decades, we find that foreign risk strongly affects London house prices. The effects are long-lasting but temporary, and are associated with both safe-haven effects and immigration.