Housing market reactions in presence of retirees migration

Housing market reactions in presence of retirees migration Paloma Taltavull, University of Alicante, Spain Karen Gibler, Georgia State University, US Presented at European Real Estate Society Meeting. Stockholm, June 24 -27, 2009 : 1

Introduction • Economic changes from 1990 s have produced at least three phenomena simultaneously stressing housing demand – Increased employment and wages for Spanish households – Increased worker immigration as the economy enlarged – Increased non-working migrants flows for leisure or residential purposes only : 2

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Introduction • Large inflow of retiree migrants to Alicante – From 1998 onwards • Impact housing market – In some small and medium cities. . Mediterranean coast and islands • Stable arrival of >55 years old Britons, Germans and other Europeans citizens +/-3000 per month, +2000 Britons) : 4

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Introduction • Impacting especially in some specific housing markets • Distinct effect depending on which population group creates the increased demand : 7

Introduction: Previous study of the retiree migrants • From REVIc. VAL (Taltavull et al, 2008, Gibler et al, 2009) we know: – Economic features are important: • • • Good house price (perceived in terms of their income) Low cost of maintenance and taxes Premium in relative cost of living Strong purchase capacity of their income Pay cash : 8

Research questions Do these retirees: • affect housing prices…. . as in the U. S. ? • increase housing construction. . (Hanushek y Quigley, 1979, Coulson, 1999 Eaton & Eckstein, 1997; Meen & Andrew, 1998. ) Hypothesis: • 1 st…Increase in demand … affect housing prices • 2 nd… affect construction of ‘specific’ houses : 9

Housing market mechanism Housing prices Supply Demand Time P 1 P 2 1 2 3 456 7 P 0 8 9 10 11 12 H 0 H 1 : Houses 10

Housing market mechanism • So retiree immigration expected to create unexpected increase in demand • Reactions… – 1 st …. D prices » P = f(pop, y, w, otr, cu) – 2 nd … D construction » Vivin =W(p) • Empirical contrast – 1 st. . Isolate the effect of the unexpected demand – 2 nd…. Identify impact on housing construction : 11

Market fundamentals • (1) Where: • Qh: • X – – – • Z: – – – • Of: housing demand. vector with variables having permanent effects on the market, which are: Pop Y: K: Population Real income per capita or measure of permanent purchase capacity Capital expenditure on housing other than income vector of variables with transitory effects on demand: ph Dh Cu housing prices vacancies user costs of housing other factors such as relative prices of other goods and tastes : 12

Market fundamentals Pop = Δp + IR + OI y = f(yl, ye) Kt = Mt + Set 3) Phdt = a 1 + b 1 [Dpop + OI, (y)t , Mt] + b 2 [IR, ye , Se] - a 5 (Dh)t – a 6 (Cu)t + mt : 13

Market fundamentals b 1 [Dp+ OI, (y)t , Mt] b 2 [IR, ye , Se] ph 3 ph 1 ph 2 : 14

Empirical analysis (6) Pht = a 1 +g 1[IR] +g 2[ye /yi]t +g 3[Exr] t + g 4[CPIe/CPIi] t +g 5 Hcgt + g 6 Irpt – a 5 (Dh) t + mt Remember that Cut = f([CPIE/CPIi], Irp, Hcg] t Irp = Mire – Mirl (mortgate rates in Spain and the origin country of retirees) Hcg = Capital gains: Dpht/pht(-1) : 15

1 st Empirical exercise • Database: – Time series 1988. . 2007 – Quarterly. . . – Secondary data. . . Aggregate at province level – British and German flow of retirees (older than 55) – Sources: Spanish National Institute of Statistics (INE), Housing Ministery (M. Vivienda), Bank of Spain, Ministery of Fomento. : 16

Empirical exercise • Methodology. • Time series. . – Integrated series – NOT cointegrated retirees migrant series – VEC. . And regression methods Stepwise LS and 2 SLS : 17

Stepwise regression : 18

Empirical analysis. : 19

Empirical analysis. : 20

Empirical analysis. Cointegration test : 21

Results – VEC : 22

Results – VEC : 23

Long term relationship. Britons : 24

Cholenski impulse-response. Britons : 25

Long term relationship. Germans : 26

Cholenski impulse-response. Germans : 27

Results • As expected according to the literature – Housing price atractiveness – relative housing prices between two countries – purchase capacity differentials explain the housing demand, and also the monetary effect through exchange rates – British flow of migration affects housing prices in the long-run with permanent effect – Germans only have short-run temporary effect : 28

Conclusions • Retiree migration flows would be expected to create a shock to the housing market in Alicante – Because of the intensity of flow of Britons, not of Germans – AND economic characteristics of the migrants • Recent process. . . Concentrated during late 90 s • With general impacts on local economy through housing market – Relevant implications. . . Economy and society : 29

THANKS FOR YOUR ATTENTION : 30