Melting Pot or Salad Bowl: How Cultural Background Affects an Immigrant’s Property Investments?

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Culture has a significant effect on our experiences and behaviors, as well as our decisions on property investments, a CUHK Business School study shows.  

By Fang Ying, Senior Writer, China Business Knowledge@CUHK

Our world is becoming flat, and moving abroad for better opportunities is increasingly common for people. However, when people choose to move to another country, will they give up their own cultural identities and thus assimilate into one single culture in the new country, or will they remain their own culture traits by congregating together as a way of finding support in a new land?

The answer is the latter, according to a study conducted by Prof. Maggie Hu Rong, an assistant professor from the School of Hotel and Tourism Management and Department of Finance of the Chinese University of Hong Kong (CUHK) Business School and her collaborator Adrian Lee from the University of Technology Sydney. The study indicates that Sydney’s newcomers are more likely to choose properties located in neighborhoods that are more culturally similar to their own culture of origin. They are also willing to pay a price premium for properties in locations with shorter cultural distance.

And among those newcomers, people from East Asia, particularly Chinese, are most likely to choose to live in a community, which is closer to their culture of origin and more willing to pay higher prices for houses in such neighborhoods.

“In our study, we find that an individual’s cultural background is indeed an important factor on housing prices,” says Prof. Hu.

According to Prof. Hu, globalization promotes the integration of societies and has provided millions of people with new opportunities. As a result, megacities with culturally diverse residents, such as Sydney, London, Los Angeles and Toronto, are becoming the new norm, yet little is known about how the interaction between these people and their host country’s culture affects their personal and financial decisions, particularly in housing markets.

As such, their working paper “Melting Pot or Salad Bowl: Cultural Distance and Housing Investments” examined whether the cultural background of property investors and cultural differences of the neighborhoods influence their housing buying decisions, in terms of location and price.

In the paper, the ‘melting pot’ metaphor describes the fusion of various religious sects, nationalities, and ethnic groups into one distinct people, while ‘salad bowl’ describes different ethnic groups, rather than assimilating, retain and coexist in their separate identities, just like the different ingredients in a salad. 

“We would like to find out in a city with diverse culture, whether the ‘melting pot’ theory dominants or the ‘salad bowl’ analogy holds true. In other words, whether the different ingredients are all mixed together to make one dish or each ingredient also retains its own characteristics in the bowl,” she says. 

The Study

For the purpose of the study, the researchers targeted Sydney, Australia’s largest and most culturally diverse city, where immigrants have made up a large component of its population. According to the statistics from 2011 Australian Bureau of Statistics Census, 57 percent of Sydney urban respondents are non-Australian or British origins.

The study looked at individual housing transaction data of the Sydney Metropolitan Area from 2006 to 2013 from Australian Property Monitors, one of the Australia’s leading national suppliers of online property price information to banks, financial markets, professional real estate agents and consumers. The dataset includes the transaction price, transaction date, property address, buyer and seller names, and relevant housing characteristics.

In addition, the researchers also utilized the data in 2006 and 2011 from the Australian Bureau of Statistics Census, namely the demographics of a suburb, to examine the ethnic composition in Sydney. The data shows that Sydney’s top five ethnicity groups in 2011 are Australian, Chinese, Irish, Italian and Arabic.

Then, they introduced a term ‘culture distance’ to gauge the cultural difference between a housing buyer’s culture of origin and the culture of neighborhood of a property. They calculated the cultural distance by adopting the six-dimension culture framework introduced by Professor Geert Hofstede, which is widely used in social science research. 

In this framework, a score on the scale of 0 to 100 is assigned to each country along six dimensions: uncertainty avoidance, individualism, power distance, masculinity, long-term orientation and indulgence. 

For example, Australia and China differ significantly on several dimensions, particularly on individualism and long-term orientation (see below), according to Hofstede (2001).

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Using a complex mathematical formula, the researchers reveal that the average cultural distance score over the entire sample is 1.99. Naturally, Australian investors have the lowest average cultural distance score of 1.35 across all ethnic groups. The average cultural distance score for Chinese homebuyers is 2.50. The higher the score on the cultural distance measure, the greater the cultural difference between a buyer and a neighborhood. 

So how does cultural distance between the homebuyers and the neighborhood influence home buying decisions? 

Cultural Distance Sensitivity 

As expected, the study finds that cultural distance is an important determinant of property investors’ location choice and transaction price.

To be specific, housing buyers are more likely to choose properties located in neighborhoods that are more culturally similar to their own culture of origin. And they are more willing to pay a higher price for properties in locations with shorter cultural distance.

In other words, there is a negative relationship between cultural distance and housing price. The greater the cultural distance between a homebuyer and a neighborhood, the lower the housing price is in the transaction.

According to the study, if the cultural distance between a homebuyer and the suburb decreased by 1 unit, which is approximately the difference between the average Australian and average Chinese property buyers’ cultural distance in the sample, housing price rises by 1.1 percent or AUD$7,382.

Asians and Home Culture Preference 

What’s more interesting, the study reveals that home investors from different ethnic groups display varying degrees of home culture preference. 

“Investors from Asia display a greater degree of home culture preference, compared with European and Australian buyers. Particularly, Chinese are most likely to pay higher prices for houses in neighborhoods which are closer to Chinese culture,” Prof. Hu points out.

The study shows that if the cultural distance between an Asian property investor and the neighborhood decreased by 1 unit, the housing price increase about 2 to 4 percent, whereas the effect is only about 1.3 percent for Europe housing investors. 

Why is that the case? According to Prof. Hu, people from Asian countries, such as China, India, Malaysia, Philippines and Vietnam, are more recent migrants into Australia, and thus have stronger cultural bonds with their countries of origin, and may display stronger home culture preference.

However, Europeans came to Australia relatively earlier compared with Asian immigrants and their cultural difference is relatively smaller, so they are better adapted to the local Australian society and their ties to their countries of origin are weaker. 

“Cultural distance sensitivity or home culture preference is weaker for more established ethnic groups than recent migrants,” says Prof. Hu.

It is worth noting that China has become one of the top sources of immigrants to Australia in recent years and there is a huge new wave of Chinese investment into the Australian property market. Their appetite for the country’s properties grows quickly.

According to New York Times, Chinese investment in Australian real estate has increased at least tenfold since 2010; Chinese investors have purchased up to half the new apartments in downtown Sydney.

Policy implications

As the study suggests homebuyers are willing to pay a premium for culture proximity, Prof. Hu believes that it has important policy implications on social diversity and urban planning. 

Recognition of foreign migrant’s inherent desire for cultural preservation is the first step towards a better understanding of foreign migrants and local communities, according to her.

“Awareness and respect for the housing investment preference of different ethnic groups would facilitate efficient urban planning,” she says. 

“We document the natural occurrence of cultural and racial segregation through individuals’ housing investment decisions in Sydney. And we believe that a similar phenomenon could be observed in other migrant cities with diverse culture, such as San Francisco, Toronto or Vancouver,” Prof. Hu concludes. 

 

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18 COMMENTS

K. Si
6/26/2017 1:58:55 PM
I think that the negative relation between culture distance and housing price may help to boost cultural integration within a region. Otherwise more people from the same culture will live together and cultural communications become more difficult.
K. Si
6/26/2017 1:54:17 PM
I think it pays for a person to buy a higher-priced house in order to live in his or her familiar cultural community for it is easier for the person to build up social capital in such communities which facilitates social actions.
K. Si
6/26/2017 1:48:20 PM
Immigrants from the same culture like to congregate together. This is quite true as evidenced by the existence of so many Chinatowns, Japantowns, and etc. overseas.
Hong HUANG
5/20/2017 9:00:44 PM
Due to the fact that many Chinese buy real estate for investment purpose rather than migration purpose, I wonder whether the paper needs to distinguish different types of buyers who certainly consider different factors.
Hong HUANG
5/20/2017 8:57:15 PM
For policy implication, I suggest to further examine whether segregation of living areas stems from cultural preservation or from discrimination. In U.S. before 1960s, racial segregation was in fact discrimination but justified as preservation.
Hong HUANG
5/20/2017 8:50:17 PM
I wonder the exact channel through which culture bond motivates investors with similar culture to live nearby. Does it contribute to getting information or people have natural affections to live with familiar kind of people?
TONG Dandan
4/23/2017 8:33:06 PM
I am curious whether the effect pertains to buying home that the investor is going to live in. Will it generalize to renting an apartment or buying properties that are for investment purpose only?
TONG Dandan
4/23/2017 8:31:13 PM
That said, collectivistic cultures, such as China and India, have stronger cultural bonds with their countries of origin; however, Europeans that are characterised by individualism are less likely to bond with their own cultures.
TONG Dandan
4/23/2017 8:30:48 PM
This is a very interesting observation. The researchers use cultural distance between the immigrants and the host culture to explain the observed effects. Another possibility is the individualism vs. collectivism of the origin culture.
Jody
4/23/2017 8:08:33 AM
As long as the amount of Chinese immigrants increases, the high price in Chinese community could be sustained.
Jody
4/23/2017 8:06:52 AM
The high unit price of property doesn’t mean the buildings have higher quality but rather location. Good location could be defined by the preference for convenience, and for Chinese immigrants, by the preference for home culture.
Jody
4/23/2017 7:57:54 AM
Location has always been among the most important factors for the price of property. This paper gives us a new angle that the relative location should be defined by cultural distance.
Qin
4/22/2017 10:15:33 PM
When being similar to each other, people usually feel safe. It is possible that buyers are willing to pay extra money for safety. It might be help if the authors could control for the influence of crime rate and living facilities.
Qin
4/22/2017 10:13:44 PM
Other aspect of similarity might influence house buyers’ choice too. It is possible that many buyers already know each other, such as they are Laoxiang. So they buy house based on recommendations or reputations.
Qin
4/22/2017 10:11:17 PM
The reasons behind could be more than cultures. For instance, when the region contains many Chinese, the supermarkets are more likely to supply foods liked by Chinese. So living in this region could decrease the cost of living and be more convenient.
Ran AN
4/22/2017 8:06:53 PM
One concern is that the difference between immigrants’ culture and the local culture might vary among different groups of immigrants, for example, immigrants from China and Europe, and thus affect comparision between these immigrants.
Ran AN
4/22/2017 7:51:23 PM
I like this study in that it provides a more comprehensive lens to see the real-world rather than only considering economic incentives specified in economists’ mathematical model.
Ran AN
4/22/2017 7:48:33 PM
This is a very interesting study. Culture becomes more and more popular in economic researches. Researchers have found it very useful to explain certain economic behaviors which are beyond the traditional economic theory.
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