Does immigration really make house prices go up, and more new homes make them go down?

What determines house prices? Most people would say ‘supply and demand’ – but what about interest rates, wages, and employment?

And what about immigration, which current housing minister Dominic Raab controversially claimed was responsible for house price rises.

It turned out that he had been given the information by civil servants, based on what critics described as ‘back of fag packet’ estimates by a now defunct quango.

Well, now you can see for yourself what actually has been said about house prices – and immigration.

Back in 2007 and 2008, the National Housing and Planning Advice Unit (NHPAU) published two reports about affordability. The body was abolished in 2010, after three short years, in the bonfire of the quangos.

Its reports were written around a University of Reading model which estimates the relationship between housing supply and affordability with demographic trends, incomes, the labour market and the housing market.

The NHPAU reports concluded:

  • If the overall number of households rises by 1%, house prices would go up by 2%
  • A 1% rise in incomes would increase house prices by 2%
  • If interest rates go up by 1%, house prices would fall by 3%
  • If housing supply rises by 1%, house prices would fall by around 2%

The Ministry of Housing, Communities and Local Government has applied these figures to house prices over a 25-year period from 1991 to 2016.

In that time the number of households in England has gone up by 4.8m – or 16% – theoretically causing a 32% increase in house prices.

Most of the rise in the number of households was due to immigration, says the ministry. During the same period the non-UK born population of England rose by 4.8m from 3.5m to 8.4m. This theoretically contributed a 21% rise in house prices.

What about earnings? Between 1991 and 2016, household incomes shot up by 75%, leading to a 150% rise in house prices.

Interest rates?

A tricky one, because interest rates have actually fallen. The Bank of England’s base rate has declined 11% over the period. In 1991, mortgage rates averaged 7.6%; in January 2016, they averaged 4.2%.

Unsurprisingly, the Ministry of Housing therefore concludes that rises in interest rates currently aren’t much use in predicting house price movements.

Housing supply has risen 20.6% over the period, which theoretically should have led to house prices reducing by 40%.

Which, when we last looked, they hadn’t.

So it does make you wonder whether building the hundreds of thousands more houses that everyone says are needed to solve the housing crisis will actually solve anything at all.

The report was published on Friday, meaning that in the weekend papers, the row about Raab and what he said about immigration and house prices rumbled on.


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  1. Will

    Perhaps this is why valuation is considered an art rather than a science!  It is a largely a mixture of all those factors combined that determine prices, that is why is is not a simple calculation. Add to this trends that happen and the occasional lemming effect!

  2. Toz1

    What a load of over analysied nonsense! It is all about supply and demand and the the demand is: Cash rich investors looking for a better return than the banks are currently offering without getting involved in risky or volatile schemes. Overseas investors looking for a safe haven for their money, capital growth, a reasonable return and, dare I say it, to launder their dirty money. Immigration increases the demand for renal property and squeezes rents fueling the buy to let market. Buy to let investors leveraging for long term gains. Desperate buyers who are in fear of being left behind and never getting a ‘foot on the ladder.’ Money is still cheap to borrow. Demand on the private sector for social housing.

    If a million houses were instantly available for sale, of course it would effect the market, providing they were not all in the outer Hebridies. A rise in interest rates will have an effect on the market – affordability for home buyers and yeilds for the investors.

    It is a social ‘housing crisis’ that demands more homes. The government ought to borrow a very large sum of money exclusively to fund the purchase of and construction of council housing. The right to buy scheme needs to be aboulished. All it does is encourage individuals to play the system and gift these opportunists with hundredss of thousands that they would never have amassed in their life time. 


    1. DarrelKwong43

      Agree, not really rocket science, as more demand will be default push up a price

      As seen with the £1 house on Channel 4, plenty of housing available, just not in the right area!!!

      1. chrisdaniel

        Don’t get me wrong,  every empathy for people without a Home, but as  Darrel says, lots of homes available in areas where the prices are the most affordable.

        So, that must mean there are people who claim to be homeless ( in the area they ‘choose’ to live, but cannot afford ) but won’t move to another area where there is Housing available.

        I’m not sure that at all fits with any definition of Homelessness.   In fact, I’d quite like a mansion on a prime spot in Hollywood, oh hang on a minute, I can’t afford that.

        Wonder if with Shelter and Generation Rents help, I can convince the Government and Tax-payers to fund it for me. !

  3. LandlordsandLetting

    The title poses the silly question: ‘What determines house prices? Most people would say ‘supply and demand’ – but what about interest rates, wages, and employment?

    Well, interest rates are effectively demand. Wages are demand and employment is demand. And so now it’s controversial to say that immigration is responsible for house price rises?!  It certainly is controversial to claim that all immigration is a good or is a bad thing, but there is absolutely no doubt at all that it contributes to the demand side of the equation.

    And in the absence of other factors if you build enough houses to satisfy pent-up demand, prices fall.

    To save any more typing then, the answer to the silly question is…YES.





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