Authors: Steven Stillman, Dave Maré
New Zealand's large and volatile external migration flows generate significant year-to-year fluctuations in the demand for residential housing.
This paper uses population data from the 1986, 1991, 1996, 2001 and 2006 New Zealand Censuses, house sales price data from Quotable Value New Zealand and rent data from the Department of Building and Housing to examine how population change, international migration, including the return migration of New Zealanders abroad, and internal migration affect rents and sales prices of both apartments and houses in different housing markets in New Zealand.
Our analysis focuses on the relationship between the changes in the population in local areas and changes in house sale prices and rents in these areas. Focusing on changes allows us to control for time-invariant unobservable characteristics of local areas that either attract or repel individuals and lead to differential costs of housing.
We find that a one percent increase in an area's population is associated with a 0.2 to 0.5 percent increase in local housing prices.
Although international migration flows are an important contributor to population fluctuations, we find no evidence that the inflow of foreign-born immigrants to an area are positively related to local house prices, despite there being a strong correlation over time at the national level.
On the other hand, there is a strong positive relationship between inflows of New Zealanders previously living abroad into an area and the appreciation of local housing prices, with a one percent increase in population resulting from higher inflows of returning Kiwis associated with a 6 to 9 percent increase in house prices.
Our findings are, however, not robust to the choice of time period, suggesting that factors other than differences in population growth across areas may be more important in determining the rate of local house price appreciation.
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