In today’s Philadelphia Inquirer I have an op-ed about how immigration could be used to increase house prices. I’ll put the whole thing below the fold, but it’s also worth noting another recent study that supports the results of the study I cite in my piece. Importantly, this study provides evidence that immigration raises house prices even in housing markets with low price inflation and rent control, and even when the immigration amounts are modest. The impact they find, which is for Switzerland, is that a 1% increase in immigration causes a 2.7% increases in home prices. To my knowledge it is still the case that every study on this issue, which is admittedly few, has found that immigration has a positive impact on house prices.

Here is what I wrote in the Inquirer, with more below the fold:

Amid reports of continuing declines in home prices, it’s safe to say that government policies designed to prop up those prices have failed. More than 14 percent of home mortgages are delinquent or in foreclosure, and 23 percent of homeowners owe more on their homes than they’re worth. At this point, it may seem as if we have to let prices fall until they find a bottom.

But we haven’t yet tried one of the easiest and least costly options for helping the housing market: more immigration.

The market’s biggest problem is the surprisingly simple fact that we have too many houses and not enough households. Over the past 10 years, a lot of new houses were built. And, from 2000 to 2005, we had the household growth to match.

More recently, however, household growth has slowed dramatically, leaving us with as many as three million fewer new households than prior growth rates created. The main explanation for this drop in household growth, in fact, is slowing immigration. The resulting disparity left us with three million additional vacant housing units.

Where does this leave us in terms of stabilizing house prices? As anyone taking Economics 101 learns, prices are determined by supply and demand. To make house prices higher, you have to either decrease supply or increase demand.

The supply side of the equation has been doing its part, as evidenced by the dismal state of the construction industry. There were fewer housing starts in 2009 than in any year since the end of World War II. New-home permits, another measure of supply, dropped to 583,000 in 2009, compared with 2.16 million in 2005 and an average of 1.32 million in the 1990s.

Production can only contract so much, and the more the housing industry slows, the worse unemployment gets. That further dampens housing demand, creating a vicious cycle.

All of this leaves us with demand. The government tried to increase demand for houses with an $8,000 tax credit for first-time home buyers and a $6,500 credit for repeat buyers. Unfortunately, this didn’t appear to have a lasting impact on prices. Instead, it just shifted demand to the near term.

Fortunately, though, there is the untapped option of allowing more legal immigration. New immigrants need places to live, and, whether they buy or rent, more housing demand decreases vacancies and increases prices.

Some may object that immigrants won’t buy houses, but the evidence suggests otherwise. We know immigrants buy homes because immigrants made up nearly a third of the growth in American homeownership between 2001 and 2007. University of Pennsylvania economist Albert Saiz has estimated that an influx of immigrants equal to 1 percent of the country’s population will raise house prices by an equivalent proportion.

One potential drawback of this approach is that it would bring more job seekers into the country at a time when unemployment is already high. But that shouldn’t be a problem for several reasons.

First, research has generally shown that immigration has at the most a small negative impact on wages and employment among high school dropouts, and a positive effect for everyone else. The downside could be mitigated by policies encouraging skilled as well as unskilled immigrants to enter the country. In addition, recent research indicates that immigration heads off outsourcing, increasing wages and employment for everyone.

Second, even if immigration does have a negative effect on wages and employment among high school dropouts, the impact on house prices and rents will be of “an order of magnitude bigger than that found in labor markets,” according to Saiz. This suggests that the beneficial economic impacts of rising house prices, along with other positive effects such as new consumption, are likely to offset the minor negative consequences for labor markets.

Finally, because the worst housing markets are in places that typically experience the highest immigration – such as California, Florida, and Arizona – admitting more immigrants will have the greatest benefit in the markets that need it most.

Everyone, including renters, has an interest in stopping the downward spiral of house prices. Low house prices mean taxpayers foot a larger bill for Fannie Mae and Freddie Mac. They also lead to more foreclosures, which are blighting neighborhoods and draining public services nationwide.

Improving the housing market would help the economy recover, and the best tool we have for achieving that is immigration.

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