Monday 18 June 2012

House prices and immigration

When you complain that the Home-Owner-Ists deliberately pushed up house prices in the UK over the last ten or twenty years, their favourite excuse is that it was purely down to large scale immigration under New Labour and they deny that it is down to their deliberate attempts to restrict supply, i.e. NIMBYism.

Now, there is plenty of evidence to say that recent immigrants are given priority in the allocation of social housing, but let's stick to the central issue: the purchase price of houses.

We know that most countries* had a house price bubble over the last ten or twenty years, same as the UK, and a different ostensible reason is given each time, for example:

1. Ireland. The narrative is that interest rates fell after they joined the Euro, fuelling a speculative credit bubble, most of which went into land. It is noteworthy that in the boom years, the Republic of Ireland, with a population of 4.5 million, completed 75,000 new homes a year.

2. Spain. The narrative is that they had a bubble after they joined the Euro (same as for Ireland), and that this was exacerbated by Germans pouring in their untaxed money from supposedly secret accounts. Spain, with a population of 47 million completed 400,000 new homes a year during the boom.

3. Norway, where "property prices have tripled since the mid-1990s, up nearly 30% since the Great Recession as the oil-rich nation rode the coattails of the commodities bubble and has benefitted from the same “flight to safety” capital flows that have benefitted (and inflated bubbles in) other Nordic countries."

4. The USA, where the house price bubble is traditionally blamed on political interference, i.e. Clinton and Bush after him encouraged banks to advance mortgages to low income households, where house prices doubled since the mid-1990s. It is believed that there was also a construction boom, but on a national level, this is not actually true. Nationwide, with a population of 294 million, housing completions have been around 1.5 million a year since 1968, which per capita is not much more than in the UK (population 62 million, 200,000 - 250,000 new completions per year until the credit crunch). There are states with strict zoning laws with little new construction (which had the biggest house price increases) and states with liberal planning laws (which had the smallest house price increases).

5. Canada's economy is pretty similar to that of the USA, but there were no efforts to increase the level of home ownership (such as encouraging lending to low income families) and their system of banking regulation is much better than in most countries. Interestingly, the level of owner-occupation has now outstripped that of the USA. Prices there more than doubled over the last twenty-five years.

6. And so on and so on, there is always an excuse, the Home-Owner-Ists are always ready to blame specific local factors: Canada and Australia shared in the commodities and raw materials price booms, the same as Norway; in China they are building like topsy, they are building whole ghost cities but most homes are bought as 'investments' and stand empty; in the Eastern European countries, prices boomed after they joined the EU in 2004.

7. For example, prices in Poland went up by a third in the first few years after joining. Interestingly, while the English like to blame high house prices on immigrants from e.g. Poland, their excuse is the equal and opposite: "Joining the EU prompted purchases by foreigners, who are however limited to one dwelling each, and encouraged remittances by Poles working abroad. As the money flowed in, the Zloty gradually moved up against major currencies, encouraged also by lower inflation..."

8. The fact that other countries had construction booms and still had bubbles (Ireland: 2 new homes per 100 people; Spain: 1 new home; USA: 0.5; against UK: 0.3) seems to exonerate the NIMBYs slightly (as malevolent as their motives are); the fact that so many countries had house price booms seems to rule out immigration as a factor - if people were emigrating from e.g. India to the UK, then wouldn't house prices be falling in India? Nope. But they then have a similar excuse to Spain/German hot money: "The Indian Property Market is purported to be in bubble territory since March 2005, when the current UPA government decided to open FDI in Real Estate. This "FDI" rules ensured that Indian money stacked in Switzerland and other tax havens can be brought back to invest in high yielding Indian property market, away from low-yielding dollar assets."

This is not to deny that inwards immigration to the UK must have had some impact - if we hadn't had this, maybe house prices would "only" have doubled in ten years instead of trebling. And while New Labour's immigration policies were questionable for many other reasons, it is also true that most immigrants did come here in good faith and found a job (their unemployment is lower than for British born people of the same age) and most are not in social housing, so as individuals they are not to blame (and are welcome to join YPP!).

10. So... once you rule out all the equal and opposite excuses (it's funny how these special local factors all seem to push prices up - nowhere are there special local factors keeping a lid on prices*), what you are left with is the same basic reason everywhere: the easiest way for banks to make money is to expand mortgage lending; they make twice as much profit if they can get house prices to double, enabling them to siphon off rental income; politicians like house price bubbles because it creates the illusion of wealth and gets them re-elected; existing owner-occupiers like it because it makes them feel rich etc, it is a vicious circle.

NB: bankers are in fact indifferent whether there's new construction or not. If the NIMBYs prevail, then they can lend more on the rising price of existing houses; if there's a lot of new construction, they can lend the money to "property developers" instead.

11. And there's something else which is the same everywhere: it's the same people who end up paying for all this; that's the next generation, assuming they're "lucky" enough to get a job. Residual unemployment is racked up each recession, and never returns to its old pre-recession level. Back in the 1970s it was headline news when unemployment in the UK hit half a million and then a million. Nowadays it'll be headline news when it hits three million. And The Daily Mail will continue to blame this on the 'welfare culture' while simultaneously saying hooray to house price inflation (and boo to immigration).

* The only noteable exceptions are Germany and Switzerland, but this is probably down to the fact that their houses were so stupendously expensive to start off with - even back in 1990, pre-unification, the average house in Germany cost seven times the average household's income at a time when the average ratio in the UK was three or lower.


  1. Minor point but with 60000 new Indians being born every day, the population of India is not going to be affected significantly by 100K emigrants. I can't find any reliable stats for Poland - although the population did fall during the 00s, the death rate exceeded the birth rate during that time.

    The house price booms in Australia and Canada are partly due to middle-class Chinese immigration - whereas in London it is corruption money from the super rich.

  2. RS, ta.

    J, yes of course. But it should still cancel out - if wealthier Chinese are going to Australia or Canada, this pushes up prices in Australia or Canada, but all things being equal, would push down prices in China. Only it never does, does it?