Immigration, Real Estate Prices and the Tenure Choice of Native Households

Past studies find that high rates of immigration can have a pronounced effect on both, housing rents and prices (see e.g. Saiz, 2011 for a discussion). These changes in the value of real estate will impact different types of native households in different ways. On the one hand, households that own a home may be able to consume a wealth gain and experience an increase in utility. Households that rent, on the other hand, may be forced to migrate to less attractive regions. In this paper, we analyze the effect of high rates of immigration on the real estate market and, in a second step, the impact that these price changes have on the location- and tenure-choice of families who live in affected areas. For our empirical analysis, we use highly granular data from Switzerland. Switzerland presents an especially useful case for our purposes for three reasons. First, it has experienced substantial net immigration for several years (193,000 persons alone in 2013 according to the Bundesamt für Statistik, 2015). Secondly, Switzerland is comparable, in culture and language, to its neighbours: Germany, France, Italy, Austria, and Liechtenstein. Our results may be applicable to these countries, which have themselves faced substantial immigration recently.Our research relates to work on the impact that immigration exerts on real estate prices (Ley et al. 2013, 2001; Frey, 1996) but also on the community composition (Borjas, 2002, 2013). Our work consequently adds to the growing field of gentrification (Guerrieri et al. 2010; Becker and Murphy, 2003; Borjas, 1995) and on factors affecting home ownership (Gyourko and Linneman, 1995, Andrews and Sánchez, 2011)We contribute to the above mentioned literature in several ways. First, we use highly detailed immigration data that allows us to disentangle which type of immigration drives price changes. We are furthermore able to observe the response of local households to price changes while controlling for a number of confounding influences. Finally, we extend the gentrification literature to a new country, strongly affected by immigration.