Does immigration affect residential real estate prices? Evidence from Australia

Abstract

Purpose This study aims to investigate the effect of immigration on housing prices in Australia both at the national and regional levels. Design/methodology/approach Data for eight Australian states on a quarterly basis from 2004–2017 is used. To study the possible dynamic and endogenous relationship between housing prices and immigration, a panel vector autoregressive error correction model (PVECM) is adopted. Findings Analysis of the results indicates that in the short run immigration positively and significantly affects housing prices, whereas in the long run no significant relationship was observed between the two variables. From the regional breakdown and analysis, it is discerned that in some states there is a significant and positive effect of immigration on residential real estate prices in the long run. Causality analysis confirms that the direction of causation is from immigration to housing prices. Practical implications The study illustrates that immigration and interstate migration, as well as high salaries, have been causing a rise in housing demand and subsequently housing prices. To monitor exceedingly high housing prices, local authorities should be controlling migration and salary levels. Originality/value Past research studies had highlighted the importance of native interstate migration in explaining the nexus between immigration – housing prices. In this study, it has been empirically verified how immigration has been affecting the locational decisions of natives and subsequently how this has been affecting housing prices.