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.
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