Housing Markets and Migration:Evidence from New Zealand
DATA AND SAMPLE CHARACTERISTICS
Population Data
This paper uses unit record data for the entire usually resident New Zealand population from the 1986, 1991, 1996, 2001 and 2006 Censuses to identify the population and characteristics of different local areas in New Zealand. The Census collects information on each individual's country of birth, their current usual residential location and their usual residential location (including overseas) five years before the census date (ie. at the time of the previous census). We use this information to classify individuals as being 'New Immigrants', 'Returning New Zealanders (Kiwis)', 'Previous Immigrants', or 'Local New Zealanders (Kiwis)' where 'New Immigrants' are individuals not born in NZ who resided outside NZ 5-years previously, 'Returning Kiwis' are individuals born in NZ who resided outside NZ 5-years previously and the remaining two categories consist of non-NZ-born and NZ-born individuals, respectively, who resided in New Zealand 5-years previously.[3]
Each individual's current usual residence is coded to a census meshblock, which is the smallest geographic area used by Statistics NZ in the collection and processing of data and is typically aligned to cadastral boundaries. In our main analyses, we consider four progressively aggregated definitions of local housing markets and estimate all of these models for each of these definitions. Newell and Papps (2001) use travel-to-work data at area unit level drawn from the 1991 census to derive labour market areas (LMAs) in New Zealand using an algorithm that ensures that most people who live in a LMA work in it, and most people who work in a LMA live in it.[4] Two sets of LMAs are defined - one with 140 areas and one with 58. The main difference is that the 140-area set provides greater disaggregation of some relatively small areas. We also define local housing markets using two administrative definitions - 73 territorial local authorities (TLAs) and 16 regional councils (RCs). One advantage of focusing on functional local labour market areas is that migration between LMAs is typically related to employment mobility, whereas migration within a LMA more strongly reflects residential factors. However, policies set at TLA and RC level influence the regulatory environment in a manner this is likely to influence housing markets (Grimes and Liang (2007)).[5]
Population and migrant subgroup counts are calculated for the usually resident population aged 18 and over in each geographic area, excluding individuals for whom there is insufficient information for classifying whether they are NZ-born or foreign-born or in which geographic area they currently reside.[6] We include all non-institutionalised adults regardless of whether they live in private dwellings or group quarters. Thus, we include in our population counts students and military personnel living in group quarters. Our concern with excluding these individuals is that for many the choice whether to reside in a private dwelling is endogenously determined with characteristics of local housing markets. As discussed further below, we allow for the fact that some proportion of the local population in different areas may not have a direct impact on the housing market by including extensive controls for the demographic and socioeconomic characteristics of local areas and examining changes over time in both population and housing markets. We also further divide the 'Previous Immigrants' and 'Local Kiwis' groups into stayers and movers based on whether they lived in the same local housing market 5-years previously.[7] Thus, this is done separately for each of the four definitions of local housing markets.
Table 1 summarises the socioeconomic and demographic characteristics of different population subgroups. Pooling the five censuses, there are roughly 12.6 million person-year observations on adults in New Zealand. On average, 64 percent are New Zealand-born and lived in the same LMA five-years previously (based on the 140 LMA definition), 15 percent are Stayer Previous Immigrants, 12 percent are Internal Migrant Local Kiwis, 5 percent are New Immigrants and 2 percent are Returning Kiwis and Internal Migrant Previous Immigrants. Each census asks questions about homeownership on the dwelling-form that is filled out by one individual in each household, but this is not asked consistently across years.[8] However, in general each of these censuses attempts to ascertain the ownership status of the dwelling that each household occupies which is then attributed to all individuals in the household (eg. whether the dwelling is owned by someone that lives in it, as opposed to whether a particular individual owns the dwelling). Over our twenty-year sample period, New Immigrants have the lowest home ownership rates of any of the groups, at 43 percent, compared with 72-73 percent for Stayer Local Kiwis and Stayer Previous Immigrants and 67 percent overall.[9] In contrast, Returning Kiwis have relatively high home ownership rates (58%) for a group that has moved in the previous five years.
To the extent that there is imperfect substitutability between rental and owned housing, different population groups will affect different parts of the housing market, possibly leading to differential impacts on house price inflation. The type of housing that each group demands may also be different. Returning Kiwis have the highest full-time (wage and salary) employment rate (51% compared with 39% overall) and high real incomes, averaging $31,922 - 22 percent above the overall mean. In contrast, the mean income of New Immigrants is 17 percent below average. Given a positive income elasticity of demand for housing quality, these two groups are likely to exert pressure on different segments of the housing market. New Immigrants and Returning Kiwis both have relatively high educational attainment, with 25 percent and 20 percent, respectively, having a university degree, compared with only 10 percent overall, consistent with their having strong future income prospects and therefore a greater likelihood of making housing investments. These subgroups are also younger (34.9 and 36.0 years, respectively) than the overall population (44.3 years). Returning Kiwis are almost entirely (89%) prime-aged (25 - 64), while 20 percent of New Immigrants are young adults (18 - 24) and 75 percent prime-age, compared with an overall age distribution of 15 percent young adult, 70 percent prime-aged and 16 percent older adult.
The quantity of housing demanded also varies across the groups. Both Returning Kiwis and New Immigrants are less likely than the overall population to have children at home, with 43 percent of Returning Kiwis and 45 percent of New Immigrants having a family status of couple with kids or single with kids, versus 47 percent of the overall population. However, New Immigrants live, on average, in larger households than all other population groups, with the average New Immigrant household containing 1.03 children and 2.75 adults versus 0.83 children and 2.34 adults in the overall average household. On the other hand, Returning Kiwis live, on average, in the smallest households of all population groups.[10] New Immigrants are more likely than Returning Kiwis, Stayer Previous Immigrant and Stayer Local Kiwis to live in non-private dwellings (5% versus 3%), but less likely than either group of Internal Migrants (7-8%).
There is undoubtedly correlation between the various characteristics summarised in Table 1, but there do appear to be differences in housing behaviour between the groups, even controlling for differing characteristics. Table 2 presents marginal effects and t-stats from a probit model of the likelihood that a particular individual lives in an owner-occupied dwelling, estimated on an approximate 10 percent random sample of the pooled adult population from the five censuses with 140 LMAs used as the definition of local areas when defining stayers versus movers. The first column of Table 2 shows the home ownership rates of each population group relative to those of Stayer Local New Zealanders, without any control variables. Replicating the findings in Table 1, New Immigrants have the lowest home ownership rates - 30.7 percent lower than Stayer Local Kiwis.
The other columns of Table 2 show the estimated home ownership differences after controlling for a progressively larger set of observable characteristics.[11] Controlling for individual and household demographics, in particular, do change the estimated differences between the groups, but even in a model with full controls including LMA fixed effects, the ranking of groups according to their home ownership behaviour is unchanged. The results from the final specification indicate that New Immigrants are estimated to be 21.2 percent less likely to own a home than Stayer Local Kiwis with the same characteristics living in the same local areas. Returning Kiwis on the other hand are only 9.2 percent less likely to own a home than Stayer Local Kiwis with the same characteristics living in the same local areas and are more likely to own a home than both Local Kiwis and Previous Immigrants that are new to these same areas.
Housing Market Data
The housing market data used in this paper come from two different sources. Our data on sales prices comes from Quotable Value New Zealand (QVNZ), which is New Zealand's largest valuation and property information company and currently conducts legally required property valuations for rating (tax) purposes for over 80 percent of New Zealand local government areas (councils)-in earlier years QVNZ conducted valuations for all councils. The remaining councils use competing valuation companies to conduct their property valuations, but these data are purchased by QVNZ to create a complete database of all New Zealand properties. QVNZ maintains a comprehensive database of all property sales that have occurred since 1982 and provides data for several categories of residential dwellings. This database was matched by QVNZ to census meshblocks and made available to us in an aggregate form at the meshblock level on an annual basis.[12]
Our data on rents comes from the Department of Building and Housing (DBH). Weekly rent data for all rental properties with new tenants are collected from tenants' bonds (deposits) which landlords are required by law to lodge with the Tenancy Services division of the Department at the beginning of a tenancy. While it is not compulsory for a landlord to require a bond from a tenant, any bond that is required from the tenant must legally be lodged by the landlord with Tenancy Services; thus the data cover most arms-length rentals in New Zealand. This database was matched to census area units (which are aggregations of meshblocks) and made available to us in an aggregate form at the area unit level for different property types on a quarterly basis from 1992.
We use the QVNZ data to create average sales prices in each geographic area for two different categories of residential dwelling in each of the census years: dwellings of a fully detached or semi-detached style on their own clearly defined piece of land; and rental flats that have been purpose built. For each of these categories, we aggregate the mean sales price in each meshblock up to the appropriate geographical area weighting by the population of each meshblock in that year.[13] Similarly, we use the DBH data to measure average weekly rents in each geographic area and census year separately for fully detached or semi-detached dwellings and for apartments. We first aggregate these series over the four quarters in each census year and then over the appropriate geographical area weighting by the population of each area unit in that year.[14] We exclude 1986 when we examine the relationship between population changes and rents, but use the 1992 rental data deflated to 1991 dollars to match the 1991 population data.
Our main analyses examine the relationship between local population changes and local changes in house prices and rents. Table 3 summarises these characteristics for the 140 LMAs in each of the census years. The first two panels present the average house prices, rents, and population characteristics across the LMAs in each year, with all estimates weighted by the local population size. Thus, these estimates relate to the average adult in New Zealand. In 1986, the average adult lived in a LMA in 1986 with a population of 154,000 and a mean house sales price of $159,000 in 2006 dollars. Twenty years later in 2006, the average adult lived in a LMA with a population of 226,000 and a mean house sales price of $364,000 in 2006 dollars. Thus, while the LMA population for the average adult increased by nearly 50 percent, the mean house sales price rose by almost 130 percent. Particularly large increases in house prices occurred between 1991 and 1996 (27%) and between 2001 and 2006 (63%).
The third and fourth panels of Table 2 present the average change in house prices, rents, and population characteristics across the LMAs between each year pair of census years, with all estimates weighted by the average local population size in the current and previous census. Thus, the average adult in New Zealand lived in a LMA in 1991 that had experienced less than a 1 percent increase in the mean house sales price since 1986. The equivalent figures for 1991-1996, 1996-2001, and 2001-2006 are a 24 percent increase, an 8 percent increase, and a 65 percent increase, respectively. The house sales and rental markets appear to follow a somewhat different cycle, with rents showing more modest changes, especially in the 2001-2006 period. Rents even declined between 1996 and 2001 (−4%), while sales prices for houses and flats went up by 8% and 2%, respectively.
The average adult lived in a LMA that experienced steady population growth from 1986 to 2001 (roughly 5% per year), with slightly stronger population growth (9%) between 2001 and 2006. The inflow of New Immigrants (ie. the number of New Immigrants divided by the population in the LMA five-years previous) increased steadily throughout the sample period, with the average adult living in a LMA with an inflow rate of 4% between 1986 and 1991, 5% between 1991 and 1996, 6% between 1996 and 2001, and 8% between 2001 and 2006. On the other hand, the average adult lived in a LMA with an inflow rate of return New Zealanders that fluctuated between 2 and 3 percent of the previous population over the twenty-year period, with relatively more Kiwis returning from abroad between 1991 and 1996 and between 2001 and 2006 than in the other periods.
We also examine the extent to which different population subgroups are living in different housing markets. Table 4 presents the average house sale price for the average individual in each population subgroup in each year across the 140 LMAs. In other words, we use the spatial distribution of individuals in each subgroup in each census to create a weighted average of house sales price for that group in that year. We also calculate the average sales price growth that occurred for each subgroup of individuals in the previous five-years based on their current location.
These results show that both New Immigrants and Stayer Previous Immigrants live in more expensive housing markets than all other population subgroups in every year. However, they do not, in general, live in housing markets with relatively higher sales price growth (although this was true in the 1991-1996 period). In fact, on average, New Immigrants and Stayer Previous Immigrants in 2006 lived in LMAs that had lower sales price growth between 2001 and 2006 than the LMAs in which other population subgroups lived (60% growth versus 64-69% growth for all other subgroups). Similar results are also found for the 1996-2001 period. On the other hand, while Returning Kiwis also live in generally more expensive housing markets than other New Zealanders, they tend to settle in markets that have similar growth trajectories as those lived in by other Kiwis.
[3] Thus, in this classification, New Immigrants may have previously resided in New Zealand more than five-year ago or may have been temporarily abroad five-years ago. The Census typically asks foreign-born individuals their year of first arrival in New Zealand, but this question was not included in 1991, thus we decided to rely on this alternative way of identifying New Immigrants. Also, using the previous location question allows us to treat them consistently with Returning New Zealanders who are identified in the same manner. Furthermore, while actual year of first arrival is obviously more ideal for classifying immigrant when examining immigrant outcomes and assimilation, it is unclear whether this is the case when examining impacts on housing markets.
[4] The 140 LMAs are defined by enforcing a minimum employed population of 2,000 and 75% self-containment of workers (allowing for some trade-off between the two). These LMAs have an average size of approximately 1900 square kilometres. In main urban areas, LMAs generally encompass the urban area and an extensive catchment area. In rural areas, LMAs tend to consist of numerous small areas, each centred on a minor service centre.
[5] Local government in New Zealand provides waste management, water, local roads, land management, parks, libraries and other local infrastructure and public goods, but has no role in the provision of education or health services. In the average TLA, nearly 60% of local services are funded from property taxes. These are a mixture of land value (50 TLAs), capital value (23 TLAs), and annual rental value (1 TLA) taxes, and uniform general charges (Kerr et al (2004)). RCs have responsibility for environmental management and public transport.
[6] Approximately 1% of individuals in the 1986 and 1991 census and 4-5% of individuals in the 1996-2006 census do not provide enough information to classify whether they are NZ-born or foreign-born and 0.02-0.03% of individuals have an undefined current address. Imputation was used more liberally by Statistics NZ prior to 1996, which likely explains the increase in individuals missing country of birth.
[7] Approximately 2-4% of individuals in the 1986 and 1991 census and 7-8% of individuals in the 1996-2006 census do not provide a valid 5-years previous census address, although almost all of these individuals provide enough information to identify that they were in New Zealand. Stillman and Maré (2007) compare mobility rates using 5-years previous addresses and intercensal population changes and conclude that the majority of individuals who do not report a valid previous address are, in fact, at the same location now as five years ago. Thus, we code all individuals with an invalid previous address as being in the same LMA five-years ago. The majority of the analysis in this paper is done at the housing market level and all population movements at this level are identified using intercensal population changes.
[8] For example, in 1986, the question reads “Is this dwelling i) owned with a mortgage, ii) owned without a mortgage, iii) provided rent-free, or iv) rented or leased,” while in 1991, the question reads “Do the occupants i) own this dwelling with a mortgage, ii) own this dwelling without a mortgage, ii) occupy this dwelling rent-free, or iv) rent or lease this dwelling,” in 1996, the three-part question reads “i) Do you, or anyone who lives here own this dwelling, ii) Do you, or anyone else who lives here, pay rent to the owner (or to their agent) for this dwelling?, iii) Does anyone who lives here make mortgage payments for this dwelling?” in 2001, the three-part question reads “i) Does anyone who lives here make mortgage payments for this dwelling?, ii) Do you, or anyone else who lives here, own or partly own, this dwelling?, iii) Do you, or anyone else who lives here, pay rent to the owner (or to their agent) for this dwelling?” and in 2006, the five-part question reads “i) Do you, or anyone else who lives here, hold this dwelling in a family trust?, ii) Does that trust make mortgage payments for this dwelling?, iii) Do you, or anyone else who lives here, own or partly own this dwelling (with or without a mortgage)?”, iv) Does this household pay rent to an owner (or to their agent) for this dwelling?, v) Do you, or anyone else who lives here, make mortgage payments for this dwelling? Furthermore, the 2006 census also includes a question on the individual form which asks, “Do you yourself own, or partly own, the dwelling that you usually live in (with or without a mortgage)?” although we do not examine this question at all.
[9] Morrison (2008) provides a more detailed account of measurement issues and trends in home ownership rates in New Zealand.
[10] These figures are calculated only for private dwelling. Separate figures have also been calculated for non-private dwellings and are included as control variables in the regression models.
[11] Individual demographics include a quadratic in age, gender, ethnicity (as in Table 1) and qualifications (as in Table 1). Employment and income includes labour force status (as in Table 1), log income and dummies for whether an individual has zero or negative income and for whether income is missing, with log income set to zero for these cases. Household demographics include marital status (as in Table 1), household type (as in Table 1) and the number of 0-5, 5-12, 13-17, 18-24, 25-64, and 65+ year-olds in the dwelling. Region of birth includes dummies for twelve different regions and foreign-born individuals with missing country of birth.
[12] Property level data are not made available because of confidentiality and privacy reasons. Thus, there is a changing composition of properties being sold over time in different areas because of the building of new properties, the upgrading of older properties, and selective selling of particular type of properties. Given that we are examining fairly aggregated local areas over five-yearly time periods, we have not attempted to mix-adjust the data. We also have information on the valuation of all properties in each meshblock, however we focus on sales prices since they provide the more accurate information on market values.
[13] This aggregation was done after dropping the meshblocks with the highest 1% and lowest 1% of median sales price to median government valuation ratio. In general, overall sales prices and valuations should be similar in an area, so these outliers either reflect measurement error or that properties way outside the norm for an area have been sold.
[14] We also create additional data series which use the number of sales (rentals) in each meshblock (area unit) as the weighting variables and other series which calculate the weighted median of the median sales price (weekly rent) in each meshblock (area unit). Our main results are all qualitatively similar when we use these alternative measures, thus we focus on the population weighted means since this is the average sales price or weekly rent a randomly allocated person would pay for a home in a particular geographic area.