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I’ve long suspected that immigration amnesty would be a boon to housing markets. The idea is that illegal immigrants could be deported and so will be less willing to make the fixed investment of homeownership, and illegal status holds down wages which should also decrease the demand for housing.  However I haven’t seen any persuasive studies on this issue. Today I discovered a new paper by Catalina Amuedo-Dorantes and Kusum Mundra that provides some evidence:

A significant homeownership gap still remains between natives and immigrants in most countries.  Because of the many advantages of homeownership for immigrants and for the communities where immigrants reside, a variety of countries have tried to implement policies that facilitate immigrant homeownership.  Many of these policies hinge on immigrants’ legal status.  Yet, owing to data limitations, we still know very little about its impact on immigrant homeownership.  We address this gap in the literature and find that legalization raises immigrant homeownership by 20 percentage-points even after accounting for a wide range of individual and family characteristics known to impact housing ownership.  This finding underscores the importance of legal status in immigrant assimilation –housing being an important indicator of immigrant adaptation, and the need for further explorations of the impact of amnesties on the housing markets of immigrant-receiving economies.

Note that this does not address the question of whether legalization increases the demand for housing or just the type of housing. For instance, legalization may simply lead illegal renters to buy houses that are identical to the ones they were renting, which aside from potential externalities to homeownership shouldn’t affect prices. This seems unlikely to me, and I’d wager that legalization also increases the demand for housing, and therefore house prices.

I’ve argued frequently that letting in more immigrants is the last best tool we have to help increase house prices, but perhaps legalizing the immigrants we already have would help as well.

UPDATE: MorallyBankrupt provides some excellent thoughts in the comments:

I used to live in Boston. While living there, a few of my friends lived in inexpensive rental apartments where line cooks–often Brazillian–also lived. They used to pack-in pretty tight in those apartments to minimize expenses and maximize remittances. A common theme was that the men would often move out to their own place if and when their wives / girlfriends came into the country or if they formed a family locally.

I think that amnesty coupled with the ability to extend legal resident status to immediate family (spouses, children) would be a great option. Not only would the units of houses demanded per newly-legal resident probably increase, but the number of residents demanding housing would increase as well. Additional positive effects would be to move (at least some) of the consumption from those remittances into the US.

Finally, establishing residence would allow access to legal, documented earnings which would increase tax-receipts and access to credit, enabling purchases of not only housing, but also durables.