Immigration and Housing Prices in Spain

Simón Sosvilla

No 2008-40, Working Papers from FEDEA

Abstract: In this paper we quantitatively explore the role of immigration in the evolution of housing prices in Spain and its autonomous regions for the period 1995-2007. We use estimations of an inverted model for housing demand with and without immigrant flows. The results we have obtained suggest that housing prices in Spain are overvaluated in relation to the value determined by its fundamental variables in a 14.75 percent if we exclude immigrant flows, and in a 7.37 percent if we take them into account. We can consequently conclude that the eventual correction in housing prices to which the Spanish economy is exposed would not be as intense as it has been suggested by some international organisations. For the different autonomous regions, the greater differences in the estimations of overvaluated housing prices are found in Murcia, Canary Islands, Valencian Community, Madrid, Catalonia, Andalusia and Balearic Islands, all of them regions particularly attractive for foreign immigrants as they offer the best employment opportunities. These regions also have a relatively high level of tourist activity and represent a favoured location by many European citizens for the acquisition of a second residence.

Date: 2008-11
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