Sunday, June 11, 2006

Does Immigration Increase or Decrease Housing Prices?

Angry Bear, curious if the last few years in real wage growth in construction are different than the trend over the last 20, calculates that even in the last two years, with a booming housing market, real compensation for construction wages still declined. Yet the construction industry promises us that despite all economic evidence to the contrary there really is a labor shortage. No, falling wages are a sure sign of a labor surplus. Using the logic of the pro-immigration folks, I guess this means we must deport illegals rather than let the market work itself out, right? I mean, if we can't let wages change in response to limited supply, why should we let it change in response to too much supply?

The effect on real wages is simply common sense and is time and again proven by the data. Lots of commenters to Angry Bear's post, however, opined that the benefit of all this was found in cheaper housing for the consumer. But is this true? The answer is: Probably not. This seems counterintuitive until one realizes that immigrants are not just building houses and apartment complexes, they're buying them too. Large immigration waves usually appreciably impact housing prices; this is nothing revolutionary.

Now, if Tyler Cowen had his way and we encouraged immigrants to live in shantytowns, housing prices might drop or remain unchanged with an influx of immigrants. But they don't live in shantytowns, thankfully. Immigrants drive up the price of housing because they're not just producers of it, they're consumers of it. This is made even clearer when one realizes that only a fraction, around 10%, of all illegals work in the construction industry. For every one immigrant working in construction, there are nine others that don't but still need a place to live. That doesn't seem like an equation for lower housing prices, but the open borders crowd believes what it wants to believe, evidence and logic be damned.

Related Posts: Here, Here, and Here.

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