Immigration and house prices in the Helsinki region

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School of Business | Master's thesis
Degree programme
39 + 10
In this study, I empirically analyse the relationship between immigration and house prices on a postal code level in Helsinki, Espoo, and Vantaa. In the paper, I define immigration as the share of population speaking a foreign native language. The relationship between immigration and house prices is studied both on an overall level and through different language groups. I use two different methodologies. First, I use a hedonic house price model to analyse the underlying housing market characteristics and locational settlement of foreign-language speaking population. I use OLS regressions to analyse 94 345 dwelling transactions between 2013 – 2019. In the second model, I study the relationship between immigration and house prices by measuring the changes in the foreign-language speaking population and real house prices between 2005 – 2020. In this method, I write the dependent variable (log of house price index) and the key independent variable (share of foreign-language speakers) in first differences and use a shift-share instrument to reduce possible endogeneity. I also study if the relationship between house prices and foreign-language population strengthens over time. My findings provide statistically significant evidence that foreign-language speakers tend to live in postal code areas with lower house prices. The negative correlation between foreign-language population and house prices remains statistically significant with and without controlling for socio-economic factors. The locational settlement of immigrants appears to be largely dependent on their region of origin. Population that speaks foreign Western European languages tends to live in areas with higher house prices, whereas populations speaking Asian, Baltic, Middle Eastern and North African languages in areas with lower house prices. I also find statistically significant evidence that areas experiencing larger immigration inflow are associated with negative relative house price development. The effect becomes larger, the longer the time period. The correlation between changes in foreign-language population and house prices, however, is no longer statistically significant after controlling for lagged socio-economic variables. It appears to be that the underlying socio-economic conditions explain why areas with higher immigrant inflows have witnessed relatively more negative house price development than other areas.
Thesis advisor
Kaustia, Markku
finance, real estate, house prices, immigration
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