The recent surge in immigration has fueled policy debates regarding the role of immigrants in the housing market, and in particular housing costs. This is especially urgent in the context of the ongoing affordability crisis, where half of renters are cost-burdened and many are foregoing homeownership. However, the timing of the recent immigration surge does not coincide with the high growth in both rents and home prices that occurred early in the pandemic. Although immigrants have played a role in household growth, sometimes to a considerable extent, housing demand during the pandemic has been primarily shaped by the growth of native-born households amid constrained housing supply. So what does the data tell us about the role of immigration in housing demand (and supply) during the recent boom in housing costs?
While it is true that immigrants play an important role in household growth and housing demand, the share of immigrant household growth has fluctuated over time, largely due to changes in the composition of native-born households. For example, data from the American Community Survey (ACS) shows that foreign-born household heads accounted for 50% of household growth from 2010 to 2015, even as native-born household formation slumped after the Great Recession. Foreign-born households accounted for 23% of household growth from 2015 to 2019, as the composition of home-born households increased prior to the pandemic.
When rents and home prices soared after the pandemic hit, immigrants still weren’t driving household growth. From 2019 to 2023, foreign-born household heads accounted for 25% of the increase in the number of households, with the number of home-born households increasing significantly (Figure 1). As a result, by 2023, 16 percent (21 million) of all households will be headed by immigrants. It should be noted that these numbers from the ACS include both documented and undocumented immigrants.
Figure 1: Pandemic-era household growth led by mainland-born households
Source: U.S. Census Bureau JCHS tally, American Community Survey 1- Year Estimates (2010-2022, via IPUMS-USA, University of Minnesota).
It is certainly true that the number of migrants arriving during the most recent surge in 2022 and 2023 was historically high. CBO estimates that immigration levels jumped from an average of 990,000 in 2020 and 2021 to 2.7 million in 2022 and 3.3 million in 2023. However, the timing of this surge has not coincided with significant increases in home prices and rents. In recent years (Figure 2). Home prices soared in 2020 and 2021, and rents rose significantly in 2021, reversing a slight decline in 2020. After immigration increased in 2022, the growth rate of house prices and rents slowed significantly. By 2023, house price growth has fallen further and rent growth has completely stalled as immigration continues to surge.
Figure 2: The spike in house prices and rents predates the immigration surge.
Note: The asking rent is the rent for professionally managed condominiums in buildings with 5 or more units.
Source: JCHS compilation of RealPage data. S&P CoreLogic Case-Shiller U.S. National Home Price Index. and CBO’s 2024-2054 Demographic Outlook.
So what explains the dramatic rise in housing costs, if not immigration? One of the main drivers of demand is that millennials (born between 1980 and 1994), the historically large demographic This is due to pent-up demand for many years, as households are in the peak buying age (26 to 40 years old as of 2020) and household formation has been delayed due to the economic damage caused by the Great Recession. . The nature of the pandemic has also increased the demand for housing with more space, especially for those working in remote areas, contributing to more people forming their own households and moving into larger houses and apartments. I did.
Additionally, the Federal Reserve’s interest rate cuts after the onset of the pandemic pushed 30-year mortgage rates to historic lows, dropping below 3.5% in April 2020 and bottoming out at 2.65% in January 2021. This caused mortgage interest rates to skyrocket. You want to take advantage of lower rates and greater purchasing power. The increased demand from these factors quickly collided with the country’s constrained housing supply, which remained at inadequate levels after years of production shortages following the Great Recession. These forces combined to put significant pressure not only on rents but also on home prices, as a growing number of renting households competed for limited rental inventory.
Moreover, while immigration increases the demand for housing, it also helps expand the supply of much-needed housing, given the significant role of immigrants in the construction industry. According to ACS data, the share of immigrants working in the construction industry in 2023 will be 34%, far higher than the 18% share of the overall workforce. This proportion was highest in the West and South, where immigrants accounted for 40 percent of all construction workers. States with the highest percentage of immigrants in the construction industry include California (52%), New Jersey (52%), Texas (51%), Maryland (50%), and Nevada (48%). It will be done. Occupations with the highest percentage of immigrant workers include plasterers (61% foreign-born), drywall installers (61%), roofers (52%), painters (51%), and carpet/flooring/tile. This included construction contractors (45%).
In the long term, population and labor force growth will be key drivers of a healthy economy and expanding economic opportunity. However, given the aging of the baby boomer generation, which historically existed in large numbers, and the decline in birth rates, the natural population change (the number of births minus the number of deaths) in the United States is predicted to become negative by 2040. . At that point, the country will be completely dependent on immigrants. Due to population growth. Although the recent surge in immigration will be difficult to absorb in the short term, immigration is and will continue to be an important source of economic growth in the future. Future household projections show that without immigration, household growth would slow significantly over the next decade, significantly depressing economic growth.
