Saturday, April 08, 2006

Immigration and the Ownership Society

It's been awhile since President Bush has touted his push for an Ownership Society. Given the intensity of the current immigration debate, it's prudent of him to keep his mouth shut. Why? Because the larger the foreign-born population, the lower the home ownership rate becomes.

Running a regression on the
home ownership rate and foreign-born proportion of the population by state yields a significant factor of zero (it's definitely not random) and an r-squared of just over .42 (42% of the home ownership rate of a state can be explained by number of the foreign-born in that state). For each 1% increase in the foreign-born population as a portion of the state's entire population, the home ownership rate correspondingly decreases .65%.

Like so many other potential consequences of the unprecedented immigration influx, it's something people should know about, and--in light of Steve Sailer's
Dirt Gap--something Republican pols should think about.

++Addition++From basic economic theory (and obviously there are lots of other factors like geography in play) I would expect the newly-arrived to locate in areas where housing is more affordable, but they are doing the exact opposite. In fact, the percentage of foreign born and housing affordability have an inverse r-squared (zero sign factor) value of .58. Wow. What role are migrants playing here? Are they attracted to places they cannot afford (because there are many affluents in need of services), are they making places less affordable, a combination of the two, or something else?


Whatever the best explanation for the complex underlying causes, the new arrivals are keeping house prices high. As natives leave (Cali or NY for example), residential prices should fall as demand eases. But migrants, who prefer the service jobs created by the high-income natives that can still afford higher-priced markets, do not go to areas where they would make less nominally (and probably in real terms as well given the industries in which they work) even though housing is generally more affordable in these places. Being able to guaratnee five bucks an hour, fill the belly, and send money back home is a desirable situation for the migrants but not for natives. Thus, the newly-arrives compensate for the price relaxation of native exodus (and then some). Meanwhile, wages are suppressed, making home ownership even less tenable for those remaining.

States with high foreign-born populations are beginning to look like manors. I'm going to look at metropolitan areas with high foreign-born populations to try and focus the effect. It seems reasonable that the inverse correlation between foreign-born and affordability will be even higher. Peasants come because the keeps have plenty of menial chores to be done. The peasants have work, but they can't afford to buy part of the manor. This situation is bad for the burghers, who leave because earning power is being pushed down while costs are going up. It's bad news for natives (future voters) that don't already own a home.

++Addition2++State-by-state comparisons dilute the inverse correlation between affordability and immigration a little. Looking at cities with over 500,000 people, the r-squared increases to .63 with a significance factor of zero.


Our self-immolating immigration policy is certainly making the ownership society a pipedream. I would hate to be a kid in his early twenties a few months away from graduation! Generation Y has it rough--a tidal wave of entitlement obligations for retiring baby boomers, a stagnation in wages, and growing unaffordability of housing.

(Immigration)

8 comments:

schopenhauer said...

Anything that correlates with the ability to pay less for property will correlate with owning it.

Time of being in a country correlates with how cheap land was when you bought it: land used to be cheaper, in real terms.

I think that would explain most of the correlation.

crush41 said...

schop,

The correlation between home ownership and house price is .41. Between home ownership and affordability (home price adjusted for income) it is .34 (both statistically significant; the former being higher at least in part due to folks with moderate incomes in high-priced areas taking their savings to plant roots in cheaper places). Land is becoming more expensive in real terms because of an increase in the foreign-born population. This is making home ownership increasingly difficult for those who do not already own a home.

rsheridan6 said...

Three comments:

Immigrants want to live with other immigrants. I knew an illegal Honduran who said that many immigrants prefer Southern California to the Midwest because they have stronger communities there, even though the standard of living is lower for low-skilled, non-English-speaking workers in Cali.

Housing costs aren't so important if you have lots of roommates. If a typical American moves from the Midwest to San Francisco, a decent three-bedroom apartment could go from, say, $700/month to $2100/month (I'm just guessing here, haven't priced an apartment in either area in a long time). That's a big difference. If you live with six roommates, the difference is a $100/month share vs a $300/month share. No big deal.

Finally, many areas with cheap housing have weak job markets. You can buy a nice house in the great plains for $30,000, but good luck finding a job.

crush41 said...

rsheridan,

So new Hispanics are altering the putative free-market flow by keeping housing prices high and labor prices low.

Your nice house for $30,000 is a little understated. That's a matchbox, even in Iowa.

The affordability index takes into account median wages. Perusing unemployment rates by state reveals an unemployment rate in the midwest that is lower than the national average. I do not see why it would be harder finding a job other than a lack of social networking.

JSBolton said...

The pattern is for low-literate, low-fluency immigrants to go to the ~highest~ priced metropolitan areas. They bid high per unit rent, and low wages; making up the difference with more incomes per unit of housing.
Over time, the higher per capita income area will fall back to the national average or even below, pushing the immigrants to fan out. This is how the poor drive out the the middle class, and why the Mexican government sounds warlike about local zoning and building code and residential use enforcement.

crush41 said...

John Bolton,

Exactly. They push up rent/housing prices and suppress wages. This economically benefits landlords (who cram prodigious numbers of people into single family units) but prices out the middle class. A feudal manor emerges. This is not good for innovation, democracy, or social cohesion. It's also politically suicidal for the Republican Party. And as you point out, it's spreading.

JSBolton said...

The analogy to peasantry and feudalism is not as close as it could be, especially in that the feudal order was immobile. One might compare to yeomanry vs. tenantry, instead.

Anonymous said...

"Immigrants want to live with other immigrants."

What kind of rationale do you have to justify that comment besides anecdotal evidence? Don't forget that many immigrants have been taking advantage of the immigrant investor visa and creating jobs for Americans, not other immigrants or illegals. Immigrants want to live in freedom and prosperity, like you...not necessarily with other immigrants!!