Introduction
Immigration plays a significant role in both the demand and supply sides of the U.S. housing market, contributing to economic growth and revitalizing neighborhoods across the country. However, the relationship between immigration and housing costs is often oversimplified and has become increasingly politicized. While immigrants do contribute to rising housing demand, they are not the primary drivers of increasing housing costs. Instead, factors such as housing shortages, restrictive zoning laws, and shifts in housing preferences in the wake of the pandemic are the more dominant forces behind rising prices. Furthermore, immigrant workers are essential to the housing supply, making up a crucial segment of the construction workforce that can address shortages and improving housing stock.
This explainer examines how immigration shapes housing demand, prices, and supply while also highlighting its broader economic and social impacts on communities and the American economy at large.
How does immigration shape the U.S. housing landscape?
Housing Supply
The 2008 financial crisis triggered a sharp decline in homebuilding, creating a persistent housing shortage that has left the U.S. with a shortfall of 5.5 to 6.8 million housing units. Since 2020, the U.S. has added nearly 5 million housing units, primarily in southern states, yet despite this growth, housing demand continues to outstrip supply, prompting experts to call for more construction, particularly of single-family homes. A key factor in addressing this housing shortfall is the immigrant workforce.
Immigrants make up more than 30% of all construction workers nationwide and represent even higher proportions in labor-intensive trades and regions like California, Texas, and Florida. With nearly 1.7 million native-born workers having left the construction industry after the 2008 financial crisis, immigrant workers, documented and undocumented alike, have been an essential part of the construction labor force amid an ongoing labor shortage. Their role becomes even more crucial during periods of high demand, such as the pandemic-driven housing boom, where new construction struggled to keep pace with shifting housing preferences.
Housing Demand
Immigrants have accounted for roughly 40% of new household formation since 2010. By the 2040s, immigration is projected to contribute nearly all U.S. population growth, filling essential roles in communities and the economy, while also adding to housing demand. However, immigrant households are less likely to own homes compared to U.S.-born households. In their first two years in the U.S., the vast majority of immigrant households—almost 9 in 10 —are renters. New immigrants, especially undocumented workers, often have limited financial resources and are more likely to share housing with family or friends, placing additional pressure on the rental market. Over time, however, many immigrants desire to transition to homeownership, but they often face considerable barriers.
The impact of immigration on housing demand varies by region. The Bipartisan Policy Center found that immigrants tend to drive housing demand in areas already experiencing population growth, while regions with stagnant or declining populations are better positioned to absorb new arrivals using existing housing supply. In Sun Belt cities like Houston and Las Vegas, immigrants have fueled housing demand, while in Rust Belt cities like Detroit, immigration has helped stabilize declining populations and prevent deeper housing market downturns, as highlighted by research from New American Economy.
Housing Prices
The effect of immigration on housing prices in the U.S. is relatively modest. While immigration does contribute to housing demand, it is not the primary factor behind the recent spike in home prices and rents. Pandemic-related supply chain disruptions, rising mortgage rates, zoning restrictions, and shifts in housing preferences have had a far greater impact.
A widely cited 2006 Journal of Urban Economics study found that a 1% increase in a city’s immigrant population correlated with just a 1% rise in housing prices and rents. A more recent Urban Institute study from 2017 shows greater demand side effects, finding that a 1% increase in immigrant population leads to a 1.6% rise in rents and a 9.6% increase in home prices in nearby metropolitan areas. That study suggests that as immigrants move to a given metropolitan area, natives tend to move to surrounding areas, indicating that these spillover price effects may be driven by native-population movements. But more recent data shows a more muddled picture. Notably, even as immigration increased in 2022 and 2023, housing price growth slowed, indicating that housing demand attributable to higher immigration levels may not be the primary driver of rising housing costs.
Neighborhood Revitalization and Local Economies
In considering the relationship between immigration levels and housing prices, it is also important to look at the enormous economic and cultural value generated by immigrants throughout the United States. The more than 40 million legal immigrants in the U.S. have created $3.7 trillion in housing wealth. Immigrant homeownership adds to property tax revenues, helping to fund local schools, infrastructure, and other public services. Immigrants often settle in underdeveloped or declining neighborhoods, stabilizing local housing markets and strengthening communities. Immigrants also contribute to the broader development of urban peripheries and “less desirable” neighborhoods.
In expensive metropolitan areas and mid-sized cities, immigrant populations have revitalized housing markets in periphery neighborhoods, bringing economic opportunities, supporting affordable housing for middle- and working-class residents, and fostering local business development. Immigrants tend to move to areas where existing communities and support networks are present, in both urban and rural America, not only filling labor needs but also providing unique cultural benefits, including immigrant-run businesses, places of worship, community centers, and ethnic restaurants.
Immigrants contribute significantly to local economies through homeownership and rental demand, boosting local property markets. For every 1,000 immigrants who settle in a county, about 250 native-born Americans follow, drawn by economic opportunities created by immigrant-driven growth. Moreover, immigrant homeowners contribute substantially to their local communities through taxes. In 2022, immigrant households contributed $579.1 billion in taxes, including an estimated $35.1 billion from undocumented households. Immigrants accounted for nearly one-sixth of all tax dollars collected by federal, state, and local governments, helping fund essential social services, including public schools, public nutrition programs, and healthcare for low-income families.
What is the specific impact of undocumented immigrants on the U.S. housing market?
An estimated 11 million undocumented immigrants are currently in the U.S. Alongside legal immigrants, they contribute to the market dynamics described above. Approximately 8 million U.S. citizens share a household with at least one undocumented family member.
Role in Construction Workforce
Undocumented immigrants are a crucial component of the construction workforce, with nearly 1.6 million undocumented workers contributing to the industry. One in five undocumented workers are employed in construction-related sectors, and more than one in ten construction workers are undocumented—twice the rate of the U.S. workforce as a whole. The current national shortage of 500,000 construction workers has developed over decades as more young Americans have pursued college degrees and white-collar careers, leading to a decline in native-born workers entering the construction field. The COVID-19 pandemic further intensified this trend by normalizing remote work, making office jobs more appealing compared to the physically demanding and sometimes hazardous conditions of construction sites.
While some politicians have suggested that the large-scale removals of the undocumented population would ease housing demand and lower prices, they overlook the significant supply-side impacts of such actions, not to mention other enormous economic and social costs arising from a mass deportation effort. The deportation of undocumented workers would severely reduce growth in the housing supply at a time when the U.S. is facing both a significant housing shortfall and massive infrastructure investments that demand more labor. These workers already face numerous challenges, including economic exploitation, heightened safety risks, and a hostile political climate. Many are paid less than their documented counterparts, lack adequate safety training, and fear retaliation if they report employer violations.
Expanding the construction labor pool is becoming increasingly difficult due to inadequate and outdated visa programs, that fail to meet the needs of immigrant workers or the employers. Existing employment-based visa programs, such as H-2B and EB-3, are inadequate and incentivize unlawful immigration for both employees and employers. Many economists and contractors argue that the current H-2B cap is too low to meet the needs of the construction industry and should be adjusted based on economic demand.
Housing Market Engagement
The undocumented population has limited engagement with many segments of the housing market, reducing its impact on the housing options utilized by native-born Americans. Undocumented individuals are barred from subsidized or public housing programs and face legal restrictions in some cities that prevent them from buying or renting property. As a result, economists note that undocumented immigrants are more likely to live in overcrowded conditions or double up with family members who already have housing, rather than purchasing homes. This tendency leads to a concentration of undocumented immigrants in specific neighborhoods, often those with lower housing costs and established immigrant communities.
The ability of undocumented immigrants to participate in the housing market as homeowners is severely constrained by their limited access to mortgages. In 2023, the Urban Institute reported that only 5,000 to 6,000 mortgages were issued to individuals using Individual Tax Identification Numbers (ITINs), which are typically used by those without legal work authorization. This figure pales in comparison to the 4.3 million first mortgages issued overall that year, highlighting the significant disparity in homeownership between undocumented immigrants and their U.S.-born or legally resident counterparts.
At the same time, a large-scale deportation of undocumented immigrants would have a significant impact on the broader housing market, beyond their role in construction. The Cato Institute estimates that deporting 10 million undocumented immigrants could result in a loss of nearly $1 trillion in U.S. housing wealth. This potential impact is illustrated by the consequences of a 2007 crackdown on undocumented workers in Arizona, where the exodus of approximately 100,000 residents led to a dramatic increase in rental vacancies, with the state’s vacancy rate surging from 9.8% to 16.8%. Thus, the consequences of mass deportation for the housing market would extend far beyond just the construction sector, affecting overall market stability, property values, and long-term housing affordability.
Conclusion
Immigration plays a nuanced role in shaping the U.S. housing market, interacting with its existing challenges. Immigrants are crucial to the solution: they form a vital part of the construction workforce, addressing labor shortages and revitalizing communities, especially those in decline. This ensures that both urban and rural areas continue to grow and thrive. Their long-term economic contributions are essential for maintaining housing affordability and stabilizing local economies. Large-scale deportations of undocumented immigrants wouldn’t solve the housing crisis; instead, it could worsen supply issues and destabilize the market. Tackling the housing crisis requires a focus on expanding the housing supply and integrating immigrants into the housing market.