The most significant factor inhibiting new home construction in the United States is exclusionary zoning, which has resulted in severe housing shortages in many areas. But a new study shows that immigration restrictions exacerbate 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:
Over the past decade, the U.S. housing market has faced a chronic shortage of housing supply, resulting in 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 article provides new evidence on a less explored channel affecting housing supply: construction labor shortages. We take advantage of the gradual increase in immigration enforcement across the country to identify negative shocks to construction employment that may be unrelated to local housing market conditions. Counties receiving treatment continued to experience significant declines in construction labor, residential construction, and rising home prices. Furthermore, there is evidence that undocumented labor complements domestic labor: deporting undocumented construction workers reduces the labor provided by domestic construction workers at both the extensive and intensive margins.
The basic idea here is pretty intuitive Economics 101: Immigrants—including undocumented immigrants—are an important part of the construction workforce. Reducing the number of available workers increases construction costs, thereby reducing production.
Even more counterintuitively, reducing the number of undocumented construction workers would also reduce employment of local workers. But, as the authors point out, this can happen when native-born and immigrant workers in the industry are complements rather than substitutes. Previous research has documented this effect in other industries, and it is possible that it may occur in this industry as well. The authors’ findings are consistent with recent research by noted immigration economist Michael Clemens, which shows that mass deportations (online) reduce employment opportunities for native workers rather than increase them.
Clearly, as the authors recognize, immigration also increases demand for housing, thereby raising prices. Likewise, deporting immigrants (or any other group) reduces demand and thus prices. But the authors show that deportations offset this effect by reducing supply, resulting in a net increase in home prices when more immigrants are deported. This makes intuitive sense: allowing in a group that is disproportionately represented in the homebuilding industry can generate enough new construction to meet the additional demand generated by that group and build additional new housing for others.
None of this proves that migrant workers no way Replacing native-born people (and vice versa). Likewise, immigrants sometimes pay more for housing than natives (and vice versa). But looking online, the two groups benefit from each other financially far more than the other way around. This appears to be the case in housing, but also in the wider economy.
If this seems implausible, consider the impact on white men in the twentieth century of allowing more women and minorities to compete more equally in the workforce. I summarized this comparison in my last article on the impact of deportations:
A useful way to think about this question is to ask whether the expansion of job market opportunities for women and blacks in the twentieth century helped or hurt white male workers online. Some white people may be net losers. If you were a marginalized white player in Major League Baseball who was replaced by Jackie Robinson or another black baseball star after the MLB merger, you may never find another job that you enjoy so much. But the vast majority of whites are almost certainly net beneficiaries, since providing opportunities for women and blacks greatly increases society’s overall wealth and productivity.
If we ban women from the workforce today, or restrict them from jobs that were open to them a century ago, some male workers will benefit….
But overall, men are poorer as a result of living in societies that are far less productive and innovative. Many men will lose their jobs or have their wages reduced because their own productivity depends in part on the goods and services produced by women….
Similar consequences would occur if we re-introduced segregation, severely limiting employment opportunities for black labor. While some white people will come out ahead, most white people will be net losers as the productivity of our economy plummets.
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.
