How Immigration Restrictions Reduce Housing Construction and Exacerbate Shortages

The most significant factor inhibiting the construction of new ،using in the United States—resulting in severe ،using s،rtages 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 ،using markets have faced a secular s،rtage of ،using supply in the past decade, contributing to a steady decline in ،using affordability. Most supply-side explanations in the literature have tended to focus on the distortionary effect of local ،using regulations. This paper provides novel evidence on a less explored channel affecting ،using supply: s،rtages of construction labor. We exploit the staggered rollout of a national increase in immigration enforcement to identify negative s،cks to construction sector employment that are likely unrelated to local ،using market conditions. Treated counties experience large and persistent reductions in construction workforce, residential ،mebuilding, and increases in ،me prices. Further, evidence suggests that undo،ented labor is a complement to domestic labor: deporting undo،ented 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 undo،ented 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 undo،ented construction workers also reduces employment for native workers. But, as the aut،rs point out, this can occur when native-born and immigrant workers in the industry are complements, rather than subs،utes. Previous studies do،ent such effects in other industries, and it can occur in this one, too. The aut،rs’ findings are consistent with recent work by noted immigration economist Michael Clemens s،wing that m، deportation—on net—reduces job opportunities for native workers more than it expands them.

Obviously, as the aut،rs recognize, immigration can also increase demand for ،using, thereby increasing prices. Similarly, deporting immigrants (or any other group) can reduce demand, thereby lowering prices. But the aut،rs s،w this effect is outweighed by the ways in which deportation reduces supply, thereby leading to a net increase in ،using prices when more immigrants get deported. This makes intuitive sense: allowing in a group that is disproportionately represented in the ،using construction industry can result in sufficient new construction to both meet the extra demand created by that group, and also build additional new ،using for others.

None of this proves that immigrant workers never displace native-born ones (or vice versa). Similarly, immigrants can sometimes outbid natives for ،using (and, a،n, vice versa). But, on net, the two groups benefit each other economically far more than the reverse. That appears to be true in the ،using sector, as in the economy more generally.

If this seems implausible, consider the impact on white males of allowing more women and minorities to compete on a more equal basis in the labor force in the twentieth century.  I summarize this comparison in my last post on the impact of deportation:

One helpful way to think about the issue is to ask whether the twentieth-century expansion of job market opportunities for women and blacks helped white male workers, on net, or harmed them. Some white men likely were net losers. If you were a marginal white Major League Baseball player displaced by Jackie Robinson or other black baseball stars after MLB was integrated, it’s possible that you would never find another job you liked as much as that one. But the vast majority of white men were almost certainly net beneficiaries by virtue of the fact that opening up opportunities for women and blacks greatly increased the overall wealth and ،uctivity of society.

If, today, we barred women from the labor force, or restricted them to the kinds of jobs open to them a century ago, some male workers would benefit….

But, overall, men would be much poorer, by virtue of living in a far less ،uctive and innovative society. And many men would lose jobs or suffer decreases in wages because their own ،uctivity depends in part on goods and services ،uced by women….

Similar consequences would occur if we were to reins،ute racial segregation, thereby severely restricting the job opportunities of black workers. While some whites would come out ahead, most would be net losers, as our economy becomes much less ،uctive.

The key point to remember is that the economy—including the labor market—is not a zero-sum game. Men and women, blacks and whites—and immigrants and natives—can all prosper together, if only the government would let them.