Immigration, Capital Flows, and Housing Prices Pavlov, Andrey; Somerville, Tsur
Research on immigration and house prices has found that immigrants raise metropolitan area house price levels, but lower them in immigrant destination neighbourhoods. In this paper we find that this latter result is not globally true. Rather neighbourhood house prices can respond positively to immigrant volumes, at least for the subset of immigrants studied here, which are those who come with wealth. The contrast with existing work highlights the importance of capital flows, in addition to people, in the effect of immigration on local asset markets. Unlike previous work that relies on panel data, we exploit a surprise suspension and subsequent closure of a popular investor immigration program in Canada to assess the impact of wealthy immigrants on local real estate markets using a difference-in-differences methodology. Using transaction data from the Greater Vancouver area, we find that the unexpected suspension of the program had a negative impact on house prices of three percent in the neighbourhoods and market segments most likely to be favoured by the investor immigrants. The negative impact of the suspension occurred quickly, within the first three months following the policy change. This speed suggests it resulted from declines in seller expectations and demand by builders to redevelop existing properties into newer more luxurious housing homes. The price declines are larger for more expensive houses in the target neighbourhoods and for neighbourhoods where the share of recent Chinese immigrants among the population is highest. None of our findings hold for property types not likely to be favoured by investor immigrants, nor for immigrant neighbourhoods favoured by those unlikely to be investor immigrants. Adding our findings to the existing literature on immigration and housing markets makes it clear that immigrants can have positive effects on local housing prices, but the effects depend on who the immigrants actually are and highlights the role of capital in augmenting immigrant demand.
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