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[UNITED STATES] In the lead-up to the 2024 U.S. presidential election, former President Donald Trump and his running mate, JD Vance, have reignited the debate on immigration and its impact on the housing market. Their campaign has proposed mass deportations as a potential solution to the nation's persistent housing affordability crisis. However, this approach has met with significant pushback from economists, homebuilders, and industry experts who argue that such a policy could have unintended consequences and potentially exacerbate the very problem it aims to solve.
The Housing Affordability Crisis: A Complex Issue
The United States has been grappling with a housing affordability crisis for years, with home prices and rents soaring far beyond wage growth. Since the onset of the COVID-19 pandemic, home prices have surged by more than 50%, according to the S&P Case-Shiller Home Price Index, while hourly wages have only increased by 23% over the same period. This widening gap has made homeownership increasingly out of reach for many Americans.
The root of this crisis can be traced back to the aftermath of the Great Recession. Since then, the U.S. population has grown faster than the housing stock, creating what Moody's Analytics estimates to be a shortage of 2.9 million homes. This supply-demand imbalance has been a primary driver of rising housing costs.
Trump's Proposed Solution: Mass Deportations
Donald Trump and JD Vance have repeatedly linked the housing crisis to immigration, arguing that deporting undocumented immigrants would alleviate pressure on the housing market. During a vice presidential debate, Vance stated, "You have got housing that is totally unaffordable because we brought in millions of illegal immigrants to compete with Americans for scarce homes".
The Trump campaign has proposed large-scale deportations as a means to address this perceived issue. While the exact scale of these proposed deportations remains unclear, Goldman Sachs economists have estimated that a Trump administration might remove between 300,000 and 2.1 million individuals by 2025.
The Economic Perspective: A More Nuanced View
Despite the campaign's claims, many economists and housing market experts argue that the relationship between immigration and housing affordability is far more complex than suggested. Some studies have indeed linked immigration to modest increases in housing costs. A 2017 analysis published in the Journal of Housing Economics found that areas experiencing immigration equal to 1% of their population saw home prices and rents rise by 0.8%.
However, recent research suggests that mass deportations could have the opposite effect of what Trump and Vance propose. A study published in March 2024 by Troup Howard, a professor of finance at the University of Utah, and researchers from the University of Wisconsin, examined the impact of a federal program that deported 300,000 undocumented immigrants between 2008 and 2013.
The study's findings were striking. Three years after the deportations, the average county had built 1,997 fewer homes, equivalent to losing an entire year's worth of homebuilding. Moreover, new construction parcels were $57,300 more expensive than they otherwise would have been, representing a 17% increase.
The Role of Immigrants in the Construction Industry
The reason for this counterintuitive outcome lies in the demographics of the construction workforce. As of 2022, about a third of all workers in home construction were foreign-born, according to an analysis of Census data by the National Association of Home Builders4. In some construction trades, the proportion of immigrant workers is even higher.
Exequiel Hernandez, an associate professor specializing in immigration studies at the Wharton School, University of Pennsylvania, emphasizes this point: "Immigrants are part of the solution to the housing crisis in the long term. Without immigrants, it is impossible to increase the housing supply".
The Potential Consequences of Mass Deportations
If large-scale deportations were to be implemented, the construction industry could face severe labor shortages, potentially leading to:
Reduced housing supply: Fewer workers could mean fewer homes built, exacerbating the existing housing shortage.
Increased construction costs: Labor shortages often lead to higher wages, which could drive up the cost of building new homes.
Higher home prices: With reduced supply and increased construction costs, home prices could potentially rise further.
Dr. Troup Howard, commenting on the potential impact of large-scale deportations, stated, "It would absolutely depress housing and lead to higher home prices".
Alternative Perspectives on the Housing Crisis
While immigration is one factor in the housing market equation, many experts point to other significant contributors to the affordability crisis:
Zoning regulations: Restrictive zoning laws in many areas limit the construction of multi-family homes and higher-density housing.
Construction slowdown: The pace of new home construction has been slower in the past decade compared to pre-2008 levels.
Remote work trends: The shift to remote work has increased demand for larger homes with office space, particularly outside major coastal cities.
Inflation: Overall consumer price increases have been a major driver of home prices and rents.
Albert Saiz, Director of the Urban Economics Lab at the Massachusetts Institute of Technology, notes that the effect of immigration on housing costs trails behind these other factors. "Quantitatively I don't think it's even close to explaining what's happened," Saiz said. "Clearly the other issues are more important".
The Homebuilders' Perspective
The homebuilding industry, which relies heavily on immigrant labor, has expressed concerns about the potential impact of mass deportations. Many industry representatives argue that immigrants play a crucial role in addressing labor shortages, particularly in skilled trades such as plastering, drywall installation, and roofing.
In various thriving housing markets, especially in Southern states, the influx of migrants has helped residential builders meet the demand for both skilled tradespeople and relatively unskilled workers. This suggests that immigrants are not just contributing to housing demand but are also instrumental in increasing housing supply.
A Balanced Approach to Housing Affordability
Given the complexity of the housing affordability issue, many experts advocate for a more nuanced and comprehensive approach:
Increase housing supply: Encourage the construction of more homes through policy incentives and zoning reforms.
Address labor shortages: Develop programs to train and attract more workers to the construction industry, including both native-born and immigrant workers.
Implement targeted immigration policies: Consider immigration policies that balance labor market needs with other economic and social factors.
Invest in affordable housing: Increase government support for affordable housing initiatives and programs.
The debate surrounding immigration and housing affordability underscores the complexity of the issue. While the Trump campaign's proposal to address the housing crisis through mass deportations may seem straightforward, the economic reality appears to be far more nuanced.
Research and expert opinions suggest that such a policy could potentially backfire, leading to labor shortages in the construction industry and potentially worsening the housing affordability crisis. Instead, a comprehensive approach that addresses multiple factors contributing to the housing shortage and affordability issues may be more effective.
As the 2024 presidential election approaches, it is crucial for voters and policymakers to consider the full spectrum of economic impacts when evaluating proposed solutions to the housing affordability crisis. The path to more affordable housing 2likely lies in a balanced approach that considers the intricate relationship between immigration, labor markets, and the construction industry, rather than in simplistic solutions that may have unintended consequences.
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