How Immigration Restrictions Reduce Housing Construction and Exacerbate Shortages

The most significant factor inhibiting the construction of new housing in the United States—resulting in severe housing shortages in many areas—is exclusionary zoning. But a new study suggests immigration restrictions contribute to the problem, by reducing the supply of workers. Here’s the abstract to the paper by Eeconomists Troup Howard, Mengqi Wang, and Dayin Zhang:

US housing markets have faced a secular shortage of housing supply in the past decade, contributing to a steady decline in housing affordability. Most supply-side explanations in the literature have tended to focus on the distortionary effect of local housing regulations. This paper provides novel evidence on a less explored channel affecting housing supply: shortages of construction labor. We exploit the staggered rollout of a national increase in immigration enforcement to identify negative shocks to construction sector employment that are likely unrelated to local housing market conditions. Treated counties experience large and persistent reductions in construction workforce, residential homebuilding, and increases in home prices. Further, evidence suggests that undocumented labor is a complement to domestic labor: deporting undocumented construction workers reduces labor supplied by domestic construction workers on both extensive and intensive margins.

The basic idea here is fairly intuitive Economics 101: immigrants—including undocumented immigrants—are an important part of the construction work force. Reducing the number of available workers increases the price of construction, and thereby reduces output.

More counterintuitive is the finding that reducing the number of undocumented construction workers also reduces employment for native workers. But, as the authors point out, this can occur when native-born and immigrant workers in the industry are complements, rather than substitutes. Previous studies document such effects in other industries, and it can occur in this one, too. The authors’ findings are consistent with recent work by noted immigration economist Michael Clemens showing that mass deportation—on net—reduces job opportunities for native workers more than it expands them.

Obviously, as the authors recognize, immigration can also increase demand for housing, thereby increasing prices. Similarly, deporting immigrants (or any other group) can reduce demand, thereby lowering prices. But the authors show this effect is outweighed by the ways in which deportation reduces supply, thereby leading to a net increase in housing prices when more immigrants get deported. This makes intuitive sense: allowing in a group that is disproportionately represented in the housing construction industry can result in sufficient new construction to both meet the extra demand created by that group, and also build additional new housing for others.

None of this proves that immigrant workers never displace native-born ones (or vice versa). Similarly, immigrants can sometimes outbid natives for housing (and, again, vice versa). But, on net, the two groups benefit each other economically far more than the reverse. That appears to be true in the housing sector, as in the economy more generally.

If this seems implausible, consider the impact on white males of allowing more women and minorities to compete on a more equal basis in the labor force in the twentieth century.  I summarize this comparison in my last post on the impact of deportation:

One helpful way to think about the issue is to ask whether the twentieth-century expansion of job market opportunities for women and blacks helped white male workers, on net, or harmed them. Some white men likely were net losers. If you were a marginal white Major League Baseball player displaced by Jackie Robinson or other black baseball stars after MLB was integrated, it’s possible that you would never find another job you liked as much as that one. But the vast majority of white men were almost certainly net beneficiaries by virtue of the fact that opening up opportunities for women and blacks greatly increased the overall wealth and productivity of society.

If, today, we barred women from the labor force, or restricted them to the kinds of jobs open to them a century ago, some male workers would benefit….

But, overall, men would be much poorer, by virtue of living in a far less productive and innovative society. And many men would lose jobs or suffer decreases in wages because their own productivity depends in part on goods and services produced by women….

Similar consequences would occur if we were to reinstitute racial segregation, thereby severely restricting the job opportunities of black workers. While some whites would come out ahead, most would be net losers, as our economy becomes much less productive.

The key point to remember is that the economy—including the labor market—is not a zero-sum game. Men and women, blacks and whites—and immigrants and natives—can all prosper together, if only the government would let them.

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