On housing and immigration

Just mention the word “immigration” and watch the temperature level in the room begin to rise. Some topics are like that. So, when it comes to this one, we prefer not to add heat but simply shine some light on how immigration effects housing. We were recently at a real estate conference in Washington, D.C., and attended a panel discussion on immigration and housing led by several top economists, including Alex Nowrasteh of the Cato Institute and Laurence Yun of the National Association of Realtors.

The population of the United States in 2015 was estimated to be 321.4 million. When you look at the makeup of that number, you find that 278.1 million are native-born residents; 22.6 million are noncitizens; 20.7 million are naturalized; and 43.3 million are foreign-born. The foreign-born category is composed of legal immigrants, guest worker visas and illegal immigrants. The illegal immigrant population in 2015 is estimated to be 11 million, which has declined from 12.2 million in 2007.

Much of the economic debate around immigrants relates to labor markets, but the effects of immigrants on the real estate market are far greater. When you break down the numbers, each immigrant adds 11.6 cents to the housing value in the county where he or she resides. This boost has the biggest impact on mid- to lower-income counties. In 2012, the total effect of 40 million immigrants added roughly $3.7 trillion to the U.S. housing wealth.

The laws of supply and demand show that an increase of buyers in a market will cause home prices to go up. If the county you live in has an increasing population, the home values will increase and, conversely, if the population is decreasing, home values will decrease. However, the rate at which population changes matters, because markets love predictability and sudden changes of population can cause markets to behave erratically. Studies on rental markets show that an

expected 1 percent increase in a city’s population produces a 1 percent increase in rents. However, an unexpected 1 percent increase in population produces a 3.75 percent increase in rents. So, a sudden surge of immigrants will cause prices to rise precipitously. This case was illustrated by the 1980 Mariel boatlift when 10,000 Cubans immigrated to the U.S., primarily Miami: the 9 percent increase in renter population produced an 11 percent increase in rents.

The same is true with a sudden decrease. When Arizona passed the Legal Arizona Workers Acts in 2008 and two years later the Support Our Law Enforcement and Safe Neighborhoods Act, which was aimed at illegal workers from Mexico, 100,000 people left Arizona. This caused the rental vacancy rates to rise from 9.8 percent to 16.8 percent!

Further effects of immigration on housing include that an increased supply of workers and lower wages boosts construction. Non-immigrant workers tend to specialize in more highly skilled construction occupations. However, the lower labor cost of construction has beneficial effects for affordable housing while the resulting wage effect on Americans is small.

It would seem clear that when it comes to immigration legislation, the sensible economic approach would be an immigration policy that creates neither sudden decreases nor increases in immigration. Politicians should beware of harsh rhetoric and rash policies that can create unexpected consequences. If, for instance, the entire immigrant population of Los Angeles or Houston suddenly left, as some politicians have advocated, the economic reality is that the housing markets would crash along with trillions of dollars of homeowner wealth. A populist politician may appeal to some homeowners with tough talk on immigration, but the reasonable homeowner will know that rocking this boat may just cause us all to sink.

Carson & Carson are trusted real estate professionals and a successful husband-and-wife duo. Melissa is the 2017 president of the Santa Fe Association of Realtors. Raising a family in New Mexico, they provide key insights and longterm perspectives for home buying and selling in Santa Fe. Call them at 505-699-3112 or email at twicethesellingpower@gmail.com.