Just Thinking

Since writing my blog entry The Benefits of a Stable Population in Housing I have come across a number of other people saying many of the same things that I said. My blog also links to a PDF paper also called Benefits of a Stable Population in Housing (450 KB pdf file).

Dr Clydesdale, who lectures at Massey’s Department of Management and International Business in Auckland, is researching the economic effects of New Zealand’s immigration policies. The following is from him and Massey University:

"New Zealanders should be questioning the rationale for current immigration policy according to a Massey economist.

Immigration puts heat on housing market - Massey economist

An extra $3600 a year in your pocket, or more immigrants ?

The question is one New Zealanders should be considering because it sums up the relationship between rising mortgage interest rates and our current immigration policy, according to Massey economist Dr Greg Clydesdale.

The arrival of more wealthy immigrants is contributing to the increasingly inflated housing market, and attempts to control it led to the recent hike in interest rates from 7.25 percent to 7.5 percent, he says.

He estimates that anyone with an average $160,000 fixed mortgage would be $3600 a year better off if interest rates had remained steady. In January 2005, the interest rate was at 5.0 percent. Since then, the Reserve Bank has increased it ten times.

“Of course immigration is not the only force driving inflation, but we only need to get inflation down within a limited range to stop the interest rates increases.”"

That is an accurate statement as far as I am concerned.

NZ Pays High Price for Fame appeared in the Sunday Star Times on Sunday, 8 April 2007 and asks "Are immigrants the cause of skyrocketing house prices? Tim Hunter investigates the financial impact of New Zealand's global popularity." before concluding "If, as seems likely, immigration is fingered as a primary engine of house price inflation, prospective home buyers should take heart. The immigration effect will tail off and the relentless competition for housing should ease."

Well that is true, but I like to consider the deeper causes and try not to go through those phases periodically.

NZ is not the only country where this is being recognised. UK house prices pushed around by population movement gives good statistics and clear scientific evidence:

"The extra demand for housing that migration and immigration cause explain much of the regional difference in house price performance around the country, according to our latest research.

Propertyfinder.com looked at regional population changes brought about by both internal and international migration and compared them to house price changes.

There is a 73% correlation between regional population growth and house price growth. Regions with the highest inward migration have seen the highest house price increases, while the least popular regions have seen house prices underperform. Exclude the North East, an exception to the trend, and the correlation is an astonishing 94%. Warren Bright, Chief Executive Officer of Propertyfinder.com said:

The overall level of house prices depends largely on the wider economy. However the relative strength of regional housing markets is very clearly due in large part to population movement. Whether it is people wanting to buy their own home to live in, or investors providing rental accommodation to newcomers, demand for housing in the most popular regions has caused prices to rise the fastest. While these population trends continue, our research suggests that the best performing regions which have been attracting the most migrants will continue to see house prices outperform over the medium term."

Dr Alan Bollard, Governor of the Reserve Bank of New Zealand made a speech What's happening in the property sector? in Rotorua.

He showed the big surges in demand:

Figure 7. Estimated annual demand for dwellings from migrants
Number of dwellings (calculated as net migrants/average persons per dwelling)

and resulting activity:

Figure 6. Indicators of housing activity
Annual percent change

as well as a lot of other material.

It is very strange that the Government seem to be saying that they don't think that migration is a major factor in housing price increases.