Cracking Down, Pricing Up: Housing Supply in the Wake of Mass Deportation

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 the interplay between residential construction, labor supplied to the construction industry, and immigration policy. 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: an indirect outcome of deporting undocumented construction workers is net job loss for US-born workers, especially in higher-skilled occupations. We find that any demand-side downward pressure on home prices linked to increased deportations is temporary and quickly dominated by the supply-side impact.

Keywords: Housing Supply, Construction Labor Supply, Home Prices

JEL Classification: R31, J60