The Honteownership Attainntent of Lntntigrants in the Uk

l l  P a g e

London School of Economics and Political Science Departmen t of Geography and Environmen t

The Honteownership Attainntent of lntntigrants in the UK

MSc Real Estate Economics and Finance

Candidate Number: 10077        Word Count: 9792

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Table of Contents

1. Introduction…        3
2. Determinants of Homeownership – Theoretical Consideration…        6

1. Demographic Determinants of Homeownership…        6
2. Socio-Economic Determinants of Homeownership        7
3. The National Origin of Immigrants as a Determinant of Homeownership…        8
4. Locational Choice of Immigrants as a Determinant of Homeownership…        9

1. Homeownership and Immigrant Assimilation: A Review of Past Literatures…        11

1. Homeownership as an Indicator of Immigration Assimilation        11
2. Empirical Models of Immigration Assimilation…        12

1. Data and Methodology…        15

1. Data Source…        15
2. Descriptive Statistics        16

1. Methodology and Results        22

1. Empirical Methodology…        22
2. Analysis of Socio-Economic Determinants        24
3. Analysis of Household Locational Choice        28
4. Analysis by Regions of Origin        30
5. Analysis of the Homeownership Gap between Immigrants and Natives…        33

1. Summary and Conclusion Remarks        36
2. References…        39
3. Appendix…        43

1. Introduction

Traditionally, the United Kingdom has been a popular centre of attraction for immigrants from the rest of the world due to its relatively high level of living standard and well developed social welfare system. In the period between 2001 and 2009 the number of foreign born population increased rapidly from 4.8 million to 6.5 million, pushing the foreign born share to over 10% of the total population.1 Large scale immigration inevitably becomes an increasingly important factor in determining the economic and demographic trends in the United Kingdom.

The ability of immigrants to adapt successfully into the social, economic and political life of their host country depends largely on their economic performance. In consequence, the study of the nature of immigration advancement is of considerable interest for policy makers.

Starting with Grossman (1982), a large number of literatures have investigated the process of immigration advancement towards comparable natives. However, the majority of these studies concentrated on the labour market consequences of immigration advancement, such as employment and wages, which do not necessarily reflect the long-term economic and social well-being of immigrants.

The most immediate impact of immigration is on the homeownership market. In particular, high rates of foreign born population accompanied by low birth rates within the UK native population suggest that new immigrants will be a major injection of housing demand in the coming future. However, in the context of homeownership, only a few papers have provided empirical evidences for an assimilation process between immigrants and their native-born counterparts. As Sinning (2008) suggests, ‘In contrast to wages, homeownership permits inferences about the long-term integration process of immigrant minorities, since it represents an outcome of long-term economic progress and plays an important role in providing long-term financial security.’2 Moreover, Green and White (1997) found that, even

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1  ‘Immigration and Society – Who would live in a place like this?’, The Economist, p14, April 10th – 16th 2010 issue

2 M. Sinning, “Homeownership and Economic Performance of Immigrants in Germany”, Page 4

after controlling for income, children of homeowners are more likely to obtain better education attainments than children of renters. Additionally, besides providing direct services to households, homeownership may also improve physical and psychological health, as well as increase life satisfaction of family members (Rohe et al., 2001). Myers and Lee (1996) identify homeownership as the key event in the assimilation process of immigrants.

The homeownership rate of United Kingdom is one of the highest among major developed countries (69% compare to 68% of US, 55% of France and 45% of Germany in 2009).

According to the National Statistics3, among the UK population in 2001, Indian minorities were the most likely of any of the different ethnic groups to own their own homes (76%).

British natives and Pakistani households were next most likely to do so (70% and 67% respectively). Bangladeshi, Black African and Other Black households have the lowest homeownership rate (26%, 36% and 37% respectively). The high rates of homeownership among British natives (70%) suggest that the growth potential in the homeownership market will be limited unless the groups whose rates of homeownership are below average (Black African, Bangladeshi and Other Black households in particular) can be encouraged to enter the market in larger extent.

So far, empirical studies examining the homeownership attainment of immigrants are mainly concentrated in the North America, especially in the United States (Balakrishnan and Wu, 1992; Alba and Logan, 1992; Coulson 1999; Borjas, 2002; Painter et al. 2003). However, similar studies for the United Kingdom, a major immigrant hub in Europe, do not exist yet. As immigrants play increasingly important roles in the social and economic profile of the nation, it is timely to examine the relative importance of immigrants as a new source of demand for homeownership of the UK.