The most significant factor hindering new home construction in the United States is exclusionary zoning, which has resulted in severe housing shortages in many areas. But new research suggests that immigration restrictions are contributing to the problem by reducing the supply of workers. The following is a summary of the paper by Economists Troup Howard, Mengqi Wang, and Dayin Zhang.
The U.S. housing market has faced a long-term housing supply shortage over the past decade, contributing to a steady decline in housing affordability. Most supply-side explanations in the literature tend to focus on the distorting effects of local housing regulations. This paper provides new evidence on a less explored pathway affecting housing supply: construction labor shortages. We exploit the staggered implementation of the national increase in immigration enforcement to identify negative shocks to construction sector employment that are likely unrelated to local housing market conditions. Treated counties continue to see significant declines in construction workforce, home building, and home price growth. Additionally, evidence suggests that undocumented work complements domestic work. Deporting undocumented construction workers reduces the labor supply of domestic construction workers, both broadly and intensively.
The basic idea here is very intuitive. Economics 101: Immigrants, including undocumented immigrants, are a significant part of the construction workforce. Reducing the number of available workers increases construction prices and consequently reduces production.
Even more counterintuitive is that reducing the number of undocumented construction workers also reduces employment of local workers. However, as the authors point out, this can happen when native-born and immigrant workers in an industry are complements rather than substitutes. Previous research has shown this effect in other industries, and it may occur here as well. The authors' findings are consistent with recent research by prominent immigration economist Michael Clemens showing that mass deportations (on the Internet) reduce rather than expand job opportunities for native workers.
Clearly, as the authors recognize, immigration can also increase demand for housing and thus prices. Likewise, deporting immigrants (or other groups) may reduce demand and thus lower prices. But the authors show that this effect is outweighed by the fact that deportations reduce supply, causing a net increase in house prices when more immigrants are deported. This makes intuitive sense. Allowing for groups that are disproportionately represented in the homebuilding industry would allow for enough new construction to meet the additional demand created by those groups and to build additional new homes for other groups.
None of these are migrant workers. never displace natives (and vice versa). Likewise, immigrants can sometimes price their homes higher than natives (and vice versa). But purely, both groups benefit economically much more than vice versa. This appears to be as true in the housing sector as it is in the economy as a whole.
If you think this doesn't make sense, consider the impact on white men in the 20th century of allowing more women and minorities to compete on a more equal footing in the workforce. I summarize this comparison in my last post on the effects of deportation.
One useful way to think about this issue is to ask whether expanding job market opportunities for women and blacks in the 20th century helped or harmed white male workers. Some white men were likely net losers. If you're one of the few white Major League Baseball players to be replaced by Jackie Robinson or other black baseball stars after MLB integrated, chances are you'll never find another job you love as much as that one. But the majority of white men were almost certainly the net beneficiaries, thanks to the fact that opening up opportunities to women and blacks greatly increased the overall wealth and productivity of society.
If we banned women's participation in the labor force today, or limited them to occupations only permitted 100 years ago, some male workers would benefit…
But overall, men will be much poorer because they live in a much less productive and innovative society. And many men will lose their jobs or face pay cuts. Because their own productivity depends in part on the goods and services that women produce…
Similar results would occur if racial segregation were reimposed to severely limit employment opportunities for black workers. Some whites will be ahead, but most will be net losers. Because the productivity of our economy is much lower.
The key thing to remember is that the economy, including the labor market, is not a zero-sum game. Men and women, blacks and whites, immigrants and natives can all prosper together if governments allow it.