Housing markets are preferred destinations for foreign investors looking for yields, vacation homes or safe havens, or for those dodging tax restraints and corruption crackdowns in their home countries. But demand for U.S. homes from foreign investors, especially Chinese, pushes up home prices, exacerbating concerns over housing affordability, according to new research from Wharton.
House prices grew 8 percentage points more in U.S. zip codes with high foreign-born Chinese populations from 2012 to 2018, according to a paper titled “Global Capital and Local Assets: House Prices, Quantities, and Elasticities,” authored by Wharton doctoral student Caitlin Gorback and Wharton real estate professor Benjamin Keys.
“The big picture is we have an affordability crisis for housing in the cities where the jobs are,” Keys says. “One of the real tensions in the U.S. housing market is that the places that are seeing sharp job growth are not creating new housing quickly enough to accommodate that job growth.”
Foreigners buying U.S. homes potentially exacerbate that problem of affordability, Keys continued. Chinese buyers have led foreign investments in U.S. homes for the past seven years. In 2019-2020, they bought U.S. home properties worth $11.5 billion, or little more than a sixth of the total, according to a report from the National Association of Realtors (NAR). Other investors in the top five came from Canada, Mexico, India and Colombia, in that order. (Colombia last year replaced the U.K. as the fifth-largest country of origin of foreign buyers). Foreign buyer purchases made up 4% of the $1.7 trillion existing-home sales last year, the NAR report noted.
The research by Gorback and Keys also shows that house prices and rents have risen in places that have seen large doses of foreign investment. “That is in large part because the places where you see foreign buyers are those same places that have more dynamic economies and have more jobs.”
The “demand shock” of foreign investment can trigger ripple effects in housing markets, the study finds, citing Seattle as a case example. “In the case of Seattle, when you drill down geographically, you see this pattern of differential house price growth, not just in the high foreign-born neighborhoods, but in the neighborhoods that border those neighborhoods,” says Keys.
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