How Do Labor Shortages Affect Residential Construction and Housing Affordability?

61 Pages Posted: 20 Mar 2024

See all articles by Troup Howard

Troup Howard

University of Utah, David Eccles School of Business

Mengqi Wang

University of Wisconsin - Madison

Dayin Zhang

University of Wisconsin-Madison

Date Written: February 16, 2024

Abstract

US housing markets have faced a secular shortage of housing supply in the past decade, contributing to a steady decline in housing affordability. Most supply-side explanations in the literature have tended to focus on the distortionary effect of local housing regulations. This paper provides novel evidence on a less explored channel affecting housing supply: shortages of construction labor. We exploit the staggered rollout of a national increase in immigration enforcement to identify negative shocks to construction sector employment that are likely unrelated to local housing market conditions. Treated counties experience large and persistent reductions in construction workforce, residential homebuilding, and increases in home prices. Further, evidence suggests that undocumented labor is a complement to domestic labor: deporting undocumented construction workers reduces labor supplied by domestic construction workers on both extensive and intensive margins.

Keywords: Housing Supply, Construction Labor Supply, Home Prices

JEL Classification: R31, J60

Suggested Citation

Howard, Troup and Wang, Mengqi and Zhang, Dayin, How Do Labor Shortages Affect Residential Construction and Housing Affordability? (February 16, 2024). Available at SSRN: https://ssrn.com/abstract=4729511 or http://dx.doi.org/10.2139/ssrn.4729511

Troup Howard (Contact Author)

University of Utah, David Eccles School of Business ( email )

David Eccles School of Business
Salt Lake City, UT 84112
United States

Mengqi Wang

University of Wisconsin - Madison ( email )

Madison, WI
United States

Dayin Zhang

University of Wisconsin-Madison ( email )

School of Business
975 University Avenue
Madison, WI 53706
United States

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