Population growth pushes up house prices but the share of migrants doesn't

31/07/2019

There has been widespread recent concern that strong increases in immigration flows have caused a housing crisis in New Zealand.

“We know that between 1986 and 2013, the number of foreign-born New Zealand residents more than doubled, whereas the New Zealand-born population rose by only 8 percent. Over the same period, the average real (inflation adjusted) house price increased by about 140 percent,” said Dr Trinh Le, a Research Fellow at Motu Economic and Public Policy Research.

“What we didn’t know was the impact that different migrants were having on the housing market.”

The research found that a 10 percent increase in local area population is associated with 4–6.5 percent higher house prices.

“Good years bring more net migration into New Zealand, and this leads to higher house prices. We designed our research to control for this and to try and discover how the size and mix of local population growth affects local housing markets,” said Dr Le.

After controlling for socio-demographic differences, the researchers found that moving New Zealanders put more pressure on house prices than the same number of immigrants would.

“We found no evidence that a higher share of new international immigrants is associated with higher house prices and there is little evidence of a relationship between who lives in a particular area and housing market prices,” said Dr Le.

The researchers also looked at the cost of rent.

“Housing provides shelter and is also an asset. House prices capture both aspects, while rent prices only capture the first,” explained Dr Le.

The researchers found that rents do not respond much to population growth, although they are positively related to higher shares of recent movers, whether these are from inside or outside New Zealand.

“We find that migrating people manage to find places to live, with a large effect on the number of occupied dwellings.  We are unable to identify whether this is a result of house building or higher occupancy rates. 

Overall, there is little evidence of increased crowding, with household size changing little over time.  However, immigrants tend to live in larger households, suggesting a possible explanation for why immigrants put less pressure on housing demand.” said Dr Le.

Due to data availability, this research only looks at figures to 2013. Since 2013, the population has grown at an historically high rate, with migration accounting for a large share of the change.

“Both population and house prices have increased substantially since 2013, but we have no reason to expect different results. Our study covers similar strong-growth periods, e.g. 2001-2006, when average real house price increased by over 50 percent,” said Dr Le.

While the report contains detailed analysis and findings regarding Auckland, the nature of the research  means no comparisons can be made with other regions.

A copy of the research, Housing markets and migration – Evidence from New Zealand by Dean Hyslop, Trinh Le, Dave Maré and Steve Stillman and funded by the Ministry for Business, Innovation and Employment is available on the Motu website.

Summary Haiku:

People need houses.
More people, higher prices,
wherever they’re from.