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The Effect of Arizona’s Immigration Enforcement Legislation on Housing Prices and Rents

The Effect of Arizona’s Immigration Enforcement Legislation on Housing Prices and Rents. Christopher Fletcher UW-Milwaukee Wisconsin Economic Association 11-10-2012. Why Housing Matters. According to National Association of Home Builders:

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The Effect of Arizona’s Immigration Enforcement Legislation on Housing Prices and Rents

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  1. The Effect of Arizona’s Immigration Enforcement Legislation on Housing Prices and Rents Christopher Fletcher UW-Milwaukee Wisconsin Economic Association 11-10-2012

  2. Why Housing Matters • According to National Association of Home Builders: • Historically residential investment and housing services made up between 16 and 18% of GDP • 66% of households have more wealth in their houses than in stocks • Home ownership “forces savings” which can be realized later through additional mortgages or sale of the property • Consumption responds more to increases in housing wealth than financial wealth • Policies that negatively effect housing demand could have wide reaching economic consequences Wisconsin Economic Association

  3. Summary • Use Arizona’s immigration enforcement legislation as a natural experiment affecting the housing and rental markets • “Difference-In-Difference” and FE regression estimates a treatment effect of 6% to 8% decline in Arizona rents • Housing prices declined around 10% to 12% • Results robust across several data sets, controls, and Newey-West and clustered standard errors • Welfare estimates: potentially a $48 billion loss of private wealth in owner-occupied houses, and $694 million in loss revenues to rental property owners for the first year Wisconsin Economic Association

  4. Background • Two laws SB 1070 and HB 2162 • Illegal to transport or hire illegal aliens • Allows state agents to arrest persons with probable cause of offense that could result in deportation, etc. • Bills passed in March of 2010 and were scheduled to become active at end of July 29th 2010. • July 28th 2010, federal judge prevented much of the law from going into effect, debated in Supreme Court this year • Department of Homeland Security estimated 120,000 less undocumented immigrants in Arizona in 2011 Wisconsin Economic Association

  5. Data • Fair Market Rate from HUD • Yearly and MSA level • Rent of Primary Residence from CPI • Yearly selection of large cities • Freddie Mac Housing Price Index • Monthly, MSA and State level • Time period from 2000 to 2011 • Controls include lagged unemployment and average weekly wage obtained from BLS • Everything in logs Wisconsin Economic Association

  6. Table 1: Rental Rate Regressions * Implies significant at 1% Wisconsin Economic Association

  7. Table 2: Housing Price Regressions * Implies significant at 1% Wisconsin Economic Association

  8. Further Remarks • Indicate declines more MSA’s with larger Hispanic populations • Results are not caused by aggregate changes population • According to US Census in 2010 Arizona had 1,877,387 Owner Occupied houses with median value of $215,000. A 12% drop in prices would result in $48 billion in lost wealth • In 2010 Arizona had about 790,488 rental properties with an estimate average monthly rental payment of $914. A 8% decrease in rents results in $58 million in lost rental income., or $694 million in lost income over the following year. Wisconsin Economic Association

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