How Immigration Affects Housing Prices: A Comment
Date Published: July 19, 2019
It is always gratifying to have one’s scholarship called upon as evidence in relevant public discussions, and is a way of knowing the extent of the impact the research has made.
Recently, a paper we published in the peer-reviewed journal Applied Economics, Effects of immigration on house prices in Canada, has been mentioned in relation with a commentary on the Vancouver housing market, first in an article in the Financial Post and then in an article in the Vancouver Sun.
Our research, published in 2012, was based on data from the 1996, 2001 and 2006 census. Although we did include information about particular cities, it was national in scope.
Identifying the effects of market forces separately on the price of a product is always a complex task in economics. This is particularly so for the housing market where multiple factors play different roles. For example, it is true that rise in immigration may cause housing prices to rise through increased demand for shelter, but it also pushes the supply up. The net effect of these two opposing moves depends on their relative magnitudes, which can even result in a decrease in prices.
Moreover, if there is an increase in housing cost through higher prices, it may result in diversion of immigration from that location together with out-migration of the local population, which can cancel out some of the rise in demand. It is always a big challenge to model all these dynamics to identify the pure effect of immigration on house prices. Our study, as clearly stated in the text, finds the net effect is not substantial, after all these dynamics are played out.
At the time we wrote our paper, Canada was accepting about 225,000 immigrants per year. It was before the banking crisis of 2008. The average home price in Vancouver was about $520,000—not quite half what it currently is.
According to CIC News, Canada expects to welcome almost 1,000,000 new immigrants between 2018 and 2020 under its Multi-Year Levels Immigration Plan.
Economics is a living science. Important conditions change and that affects the market. The scope of our study did not include a deeper look into the individual cases of Canada’s cities, and that was a choice we made at the outset of our research.
Yigit Aydede, PhD and Ather Akbari, PhD
The Sobey School of Business is proud to be home to a robust Economics program, including undergraduate majors and honours programs in both the Bachelor of Commerce and Bachelor of Arts degrees. We host a Master of Applied Economics and a research centre called the Atlantic Research Group on Economics of Immigration, Aging and Diversity. Our active, internationally-known faculty members such as Drs. Aydede and Akbari regularly contribute to high calibre peer-reviewed journals and offer consulting for businesses, governments and other organizations.