Cracking Down, Pricing Up: Housing Supply in the Wake of Mass Deportation

Discover how increased immigration enforcement affects housing construction and prices

Paper reviewed:

Howard, Troup and Wang, Mengqi and Zhang, Dayin, Cracking Down, Pricing Up: Housing Supply in the Wake of Mass Deportation (February 16, 2024). This paper previously circulated under the title "How Do Labor Shortages Affect Residential Construction and Housing Affordability?", Available at SSRN: https://ssrn.com/abstract=4729511 or http://dx.doi.org/10.2139/ssrn.4729511

Summary

Housing shortage is one of the most significant burdens facing the United States. This research examines the effects of the Secure Communities program on housing supply, construction labor, and home prices, revealing significant reductions in new construction and changes in homeownership rates.

Key Findings

• Increased immigration enforcement through the Secure Communities (SC) program led to a 5.7% reduction in new residential construction, corresponding to 80 fewer homes per year for the average-sized county.
• The SC program resulted in a 4.4% to 4.5% increase in new construction prices, with minimal impact from endogenous changes in home characteristics.
• Existing stock home prices showed varied responses to SC, with a 3.4% increase in tracts with low undocumented population share, and a 4.1% decrease in tracts with high undocumented population share.
• The SC program led to a reduction in homeownership rates by 0.93 percentage points.
• The construction workforce was significantly impacted, with a decline of 2.7% in the total construction workforce, and a larger decline in undocumented workers.

Implications

Business and Policy Implications

• Businesses and policymakers should consider the impact of immigration enforcement on housing supply and affordability.
• The reduction in new construction and increase in prices may have significant implications for housing affordability and the overall economy.
• Policymakers may need to consider alternative strategies to address housing affordability, such as increasing labor supply to the construction industry.
• The findings suggest that immigration policy can have significant effects on local economies and housing markets.

My thoughts

About 12.1 million renter households in the U.S. spend more than 50% of their income on rent and utilities Harvard gazette. Housing shortage is one of the most important issues that must be addressed to improve quality of life in the United States. The study's findings highlight the complex and multifaceted nature of the relationship between immigration policy and housing markets. By carefully considering the potential effects of immigration policy on housing supply and demand, businesses, managers, and policymakers can work together to mitigate potential risks and capitalize on opportunities. Ultimately, a nuanced understanding of the effects of immigration policy on housing markets is essential for developing effective policies and strategies that promote housing affordability and stability.

Introduction

The past decade has seen a significant decline in housing affordability in the United States, with many attributing this to a secular decline in housing supply. While previous research has focused on the role of zoning regulations and local building covenants, little attention has been paid to the impact of labor supply on housing construction. This paper explores the relationship between immigration policy and housing supply, using the rollout of the Secure Communities (SC) program as a natural experiment.

Background and Context

The SC program, launched in 2008, aimed to enhance information sharing between local law enforcement and federal immigration databases, leading to increased deportations of undocumented immigrants. The construction sector is known to rely heavily on undocumented labor, making it an ideal setting to study the impact of immigration policy on housing supply. Previous research has shown that immigration enforcement can have significant effects on local economies and labor markets.

The paper uses a staggered-rollout differences-in-differences design to examine the impact of SC on new construction, home prices, and labor supply. The analysis controls for county fixed effects, as well as high-dimensional fixed effects to account for differences in county characteristics and exposure to the Great Recession.

The findings suggest that increased immigration enforcement through SC led to significant reductions in new construction, increases in new construction prices, and varied responses in existing stock home prices. The construction workforce was also significantly impacted, with declines in both undocumented and US-born workers.

The paper's results have important implications for businesses and policymakers, highlighting the need to consider the impact of immigration policy on housing supply and affordability. The findings also suggest that policymakers may need to consider alternative strategies to address housing affordability, such as increasing labor supply to the construction industry.

The rest of this paper is organized as follows. Section 2 describes the institutional details of the SC immigration shock. Section 3 describes the empirical approach, and Section 4 outlines the key sources of data. Section 5 presents the results, and Section 6 concludes.

Background and Context

Relevant Industry/Field Context

The construction industry is a significant sector of the US economy, with a large share of undocumented workers. The SC program's impact on this industry is likely to have significant effects on housing supply and affordability.

Previous Research or Current State of Knowledge

Previous research has shown that immigration enforcement can have significant effects on local economies and labor markets. The literature on housing supply has focused on the role of zoning regulations and local building covenants, but little attention has been paid to the impact of labor supply on housing construction.

Why This Research is Needed

This research is needed to understand the impact of immigration policy on housing supply and affordability. The findings have important implications for businesses and policymakers, and can inform alternative strategies to address housing affordability.

The paper uses a difference-in-differences design to examine the impact of SC on new construction, home prices, and labor supply. The analysis controls for county fixed effects, as well as high-dimensional fixed effects to account for differences in county characteristics and exposure to the Great Recession.

The results show that increased immigration enforcement through SC led to significant reductions in new construction, increases in new construction prices, and varied responses in existing stock home prices. The construction workforce was also significantly impacted, with declines in both undocumented and US-born workers.

The findings suggest that immigration policy can have significant effects on local economies and housing markets. The reduction in new construction and increase in prices may have significant implications for housing affordability and the overall economy.

Policymakers may need to consider alternative strategies to address housing affordability, such as increasing labor supply to the construction industry. The findings also suggest that zoning reform or streamlining, often touted as a necessary step, may not be sufficient to address housing affordability.

The paper's results have important implications for businesses and policymakers, highlighting the need to consider the impact of immigration policy on housing supply and affordability. The findings can inform alternative strategies to address housing affordability and promote more effective policymaking.

Key Findings

• The SC program led to a 5.7% reduction in new residential construction.
• New construction prices increased by 4.4% to 4.5% following SC implementation.
• Existing stock home prices showed varied responses to SC, with increases in tracts with low undocumented population share and decreases in tracts with high undocumented population share.
• The construction workforce declined by 2.7% following SC implementation.
• The decline in construction workforce was driven by both undocumented and US-born workers.

Business and Policy Implications

• Immigration policy can have significant effects on local economies and housing markets.
• Policymakers should consider the impact of immigration enforcement on housing supply and affordability.
• Alternative strategies to address housing affordability may be necessary, such as increasing labor supply to the construction industry.
• Zoning reform or streamlining may not be sufficient to address housing affordability.

The paper's findings have important implications for businesses and policymakers, and can inform more effective policymaking to address housing affordability.

Event Study Evidence: Validation of Parallel Trends

The event study analysis shows that outcomes were evolving similarly in treatment and control counties before SC activation, supporting the parallel trends assumption.

The event study also illustrates the temporal path of treatment effects, showing increasing impacts at longer horizons. However, the presence of cohort heterogeneity complicates the interpretation of these dynamics.

The event study of price impact in existing stock is particularly interesting, showing that prices decline in tracts with high undocumented population share in the near-term, but eventually increase.

Overall, the findings suggest that immigration policy can have significant effects on housing supply and affordability, and that policymakers should consider these impacts when designing immigration policies.

The rest of this paper is organized as follows. The next section will discuss the data used in the analysis, followed by a presentation of the results. The final section will conclude and discuss the implications of the findings.

Main Results

The analysis of the impact of Secure Communities (SC) on housing markets reveals several key findings. The main results are presented in the following subsections.

New Construction Quantity

The introduction of SC leads to a significant reduction in new construction quantity. Using administrative deed transaction records from CoreLogic, the analysis shows that counties adopting SC see a 5.7% reduction in residential construction, corresponding to 80 fewer homes per year for the average-sized county.

• The reduction in new construction is primarily driven by single-family homes, with a decline of 5.7% relative to the pre-policy baseline rate.
• The results are robust to different specifications, including the use of high-dimensional fixed effects to control for county characteristics and time-varying factors.

Effect on House Prices

The impact of SC on house prices is complex and depends on the segment of the housing market. The analysis distinguishes between new construction and existing housing stock.

New Construction Prices

• SC increases raw transaction prices for new construction by 4.5%.
• The inclusion of hedonic controls to account for changes in home characteristics results in a quality-adjusted price increase of 4.4%.
• The effect on new construction prices is consistent with a supply-side shock, as the reduction in new construction leads to higher prices.

Existing Housing Stock Prices

• The overall effect of SC on existing housing stock prices is nuanced, with no significant change in average prices.
• However, there is significant heterogeneity in price impacts across neighborhoods with different demographic characteristics.
• Tracts with a high share of undocumented residents (LEFB) experience a decline in prices, while tracts with low LEFB share see an increase in prices.

Evidence on Construction Workforce as Mechanism

The reduction in new construction is linked to a decline in the construction workforce, particularly among undocumented workers.

• The analysis using ACS microdata shows that SC leads to a significant reduction in the number of working-age LEFB individuals in construction occupations.
• The decline in construction workforce is not fully offset by an influx of domestic workers, resulting in a net reduction in labor supplied to the construction sector.

Wage Adjustment

The analysis examines the response of wages to the reduction in labor supply.

• The results show that hourly wages for LEFB workers in construction occupations increase by 4.2% in response to SC.
• The wage increase is driven by lower-skilled LEFB workers, with an estimated increase of 8.2% in hourly wages.
• There is no significant change in wages for US-born workers in construction occupations.

Methodology Insights

The analysis employs a staggered-rollout Differences-in-Differences (DiD) design to estimate the causal impact of SC on housing markets.

• The use of a bias-robust estimator, such as the one proposed by Borusyak et al. (2024), is essential to address potential biases in the DiD estimates.
• The high-dimensional fixed effects used in the analysis help to restrict comparisons to counties with similar characteristics and exposure to the Great Recession.

Analysis and Interpretation

The findings suggest that immigration policy has significant effects on housing supply and affordability.

• The reduction in new construction and increase in new construction prices are consistent with a supply-side shock.
• The heterogeneous price impacts across neighborhoods with different demographic characteristics highlight the importance of considering the distributional effects of immigration policy.

The results have implications for policymakers interested in addressing housing affordability.

• The findings suggest that policymakers should consider the potential impacts of immigration policy on housing markets and construction labor supply.
• The analysis highlights the need for a nuanced understanding of the effects of immigration policy on different segments of the housing market.

Practical Implications

The findings of this study have significant practical implications for businesses, managers, and policymakers. The reduction in new construction and increase in new construction prices due to increased immigration enforcement have far-reaching consequences for the housing market.

Real-World Applications

1. Housing Affordability: The study's results suggest that immigration policy can have a significant impact on housing affordability. Policymakers interested in addressing housing affordability should consider the potential effects of immigration policy on housing supply and demand.
2. Construction Labor Supply: The reduction in construction labor supply due to increased immigration enforcement highlights the importance of considering the labor market implications of immigration policy. Businesses and policymakers should be aware of the potential disruptions to the construction labor supply chain.
3. Regional Variations: The heterogeneous price impacts across neighborhoods with different demographic characteristics suggest that regional variations in immigration policy can have distinct effects on local housing markets.

Strategic Implications

1. Businesses: Construction companies and developers should be aware of the potential risks and opportunities associated with changes in immigration policy. They may need to adapt their business strategies to respond to changes in labor supply and demand.
2. Managers: Managers in the construction industry should consider the potential impact of immigration policy on their labor supply chain and adjust their hiring and training practices accordingly.
3. Policymakers: Policymakers should carefully consider the potential effects of immigration policy on housing markets and construction labor supply when designing and implementing policies.

Who Should Care?

1. Construction Industry Stakeholders: Construction companies, developers, and industry associations should be aware of the potential implications of immigration policy on their businesses.
2. Policymakers: Policymakers at the local, state, and federal levels should consider the potential effects of immigration policy on housing markets and construction labor supply.
3. Housing Advocates: Housing advocates and organizations interested in addressing housing affordability should be aware of the potential implications of immigration policy on housing markets.

Actionable Recommendations

1. Monitor Immigration Policy: Businesses and policymakers should closely monitor changes in immigration policy and be prepared to adapt to potential changes in labor supply and demand.
2. Diversify Labor Supply: Construction companies and developers can consider diversifying their labor supply chain to reduce dependence on any one group of workers.
3. Invest in Training: Businesses and policymakers can invest in training programs to develop the skills of domestic workers and reduce reliance on immigrant labor.
4. Regional Planning: Regional planning and coordination can help mitigate the effects of immigration policy on local housing markets.

Implementation Considerations

1. Data Collection: Accurate data collection and analysis are crucial for understanding the effects of immigration policy on housing markets and construction labor supply.
2. Stakeholder Engagement: Businesses, policymakers, and other stakeholders should engage in ongoing dialogue to ensure that the needs and concerns of all parties are considered.
3. Flexibility: Businesses and policymakers should be prepared to adapt their strategies in response to changing immigration policies and labor market conditions.

Conclusion

The study's findings have significant implications for businesses, managers, and policymakers. The reduction in new construction and increase in new construction prices due to increased immigration enforcement highlight the need for careful consideration of the potential effects of immigration policy on housing markets and construction labor supply. By understanding these implications and adapting their strategies accordingly, stakeholders can mitigate potential risks and capitalize on opportunities.

Summarize the Main Takeaways

1. Immigration Policy Affects Housing Supply: Increased immigration enforcement reduces new construction and increases new construction prices.
2. Construction Labor Supply: The reduction in construction labor supply due to increased immigration enforcement has significant implications for the construction industry.
3. Regional Variations: Regional variations in immigration policy can have distinct effects on local housing markets.