What It Really Means for Housing Markets and Investors

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A record 300,000 migrants entered the U.S. through the southern border in December. Rather than trying to sneak past border agents, many surrendered to apply for asylum. 

Overwhelmed immigration courts take years to process these claims, and migrants are protected from deportation in the meantime. They hope to stay, work, and build a life here. But achieving legal status in the U.S. is a complicated process. Meanwhile, some Americans are fearful of the impact of increased immigration rates on U.S. citizens and communities, which has led politicians to consider immigration policy reforms. 

There’s no question that the arrival of hundreds of thousands of new migrants has strained the resources of some cities. Denver, a city with a population of just over 710,000, has struggled to serve the 40,000 migrants arriving in the past year. The city made budget cuts to devote resources to integrating them but will need support from the federal government to continue, says Mayor Mike Johnston. Bigger sanctuary cities like Chicago and New York City have also struggled to provide sufficient shelter as new migrants arrive in droves. 

But deporting the majority of these people or implementing any policy that substantially reduces immigration would ultimately have a negative impact on the U.S. economy and the housing market in the long run. Without immigration, the U.S. population would decline more than 30% by 2100, according to census projections, which could negatively impact economic growth and housing demand. Across the world, China is already dealing with the fallout of two straight years of population decline, including deflation, the departure of investors, and difficulties funding healthcare for older adults. A decrease in immigration could also mean fewer job opportunities for U.S.-born workers and even deeper labor shortages in the construction industry. 

In short, immigration policy, in one way or the other, has the potential to hurt a real estate investor’s bottom line. Let’s take a deeper look.

The Impact on Housing Wealth and Rental Revenue

Immigrants living in the U.S. added $3.7 trillion to the country’s total housing wealth between 1970 and 2010, according to research by two bipartisan nonprofit organizations. It is now estimated that immigrant households hold a collective $5.4 trillion in housing wealth. 

When immigrants move into a community, the demand for housing goes up. The expanded population also supports an increase in economic activity due to more demand for local goods and services. As a result, home values rise. The commercial real estate sector may similarly benefit due to increased demand for multifamily housing and retail and industrial assets in affected communities. 

More housing wealth generally means less affordability for would-be homeowners, which raises concerns in a tight housing market. However, research shows immigration stabilizes prices in areas of decline, making those areas viable alternatives for U.S.-born homeowners priced out of expensive metros rather than putting even more upward pressure on prices in sought-after neighborhoods of high-priced cities. 

Immigrants often avoid neighborhoods with high prices and housing shortages and have contributed little to housing price hikes in the nation’s priciest counties. Instead, they tend to head for areas that were once in economic decline, stabilizing home prices and revitalizing communities. 

For example, immigration has prevented population decline in Chicago and surrounding Cook County, keeping housing prices relatively stable. Peripheral neighborhoods of New York, San Francisco, and Atlanta, once deemed undesirable, have also benefited from the impact of immigration on housing markets. For example, immigration countered population and housing market declines in the Bronx and Queens. 

The same is true for rent prices. 2017 study found that a 1% increase in a metro’s population due to immigration was correlated with a 0.8% increase in both rent prices and home values. But the effect was even more pronounced in surrounding metros, where a 1.6% increase in rents and a 9.6% increase in home prices were observed

When a city experiences a rise in immigration, real estate investors have the opportunity to capture increased rental revenue and home price growth in surrounding areas. Immigration can, therefore, boost real estate investors’ capability to make strategic investment decisions in local housing markets. 

So, it stands to reason that a reverse in immigration trends would correspondingly lead to housing market declines. The nation would lose close to $1 trillion in housing wealth by deporting 10 million undocumented immigrants, according to the Cato Institute, an American nonpartisan think tank. A 2007 crackdown on employment of undocumented workers in Arizona prompted the exodus of 100,000 residents, exemplifying the effects of deportation on local rental vacancies: During the decline in the immigration population in Arizona, the vacancy rate surged from 9.8% to 16.8%.

Note that these negative housing market shocks would occur due to the deportation of immigrants who don’t have legal status. Illegal immigrants, like their naturalized counterparts, pay billions in taxes and contribute to the demand for housing, goods, and services. In addition, the spike in new arrivals to the U.S. may be propping up the economy, according to JPMorgan analysts, though the vast majority of new immigrants will not receive green cards this year. 

The Impact on Taxpayers

Still, there is valid concern about taxpayer-funded resources devoted to integrating new immigrants, especially those who enter the U.S. illegally. For example, New York City has entered into emergency contracts worth more than $7 billion to provide temporary housing, healthcare, and other services for asylum seekers. Officials in Chicago estimate the city will require an additional $321 million this year to provide care for asylum seekers sent there from the southern border. 

Inefficient spending may be part of the problem. Win NYC, the largest supportive housing provider in New York City estimates that providing migrants with housing vouchers could trim $3 billion annually from the city budget, for example. Subsidized housing programs are still funded by taxpayers, of course, but the Cato Institute estimates that immigrant tax contributions exceed immigrant consumption of benefit programs on average. 

Though some anti-immigration think tanks claim that immigrants are more likely to rely on means-tested programs, nonpartisan organizations are critical of the methodology used, and their own reports show lower rates of participation in public benefit programs among the immigrant population. Though analyses of public data show varying results, the Bipartisan Policy Center notes, “Most studies of benefits usage by individuals find that immigrants access benefits at or below the usage rate for native-born Americans.” Most undocumented immigrants don’t individually qualify for welfare programs, but their children might. 

2021 data from the Survey of Income and Program Participation show that while 18.8% of adult respondents were foreign-born, they account for 18.8% or less of the recipients of SSI, TANF, and SNAP. Immigrants had relatively high participation rates for the WIC program, however, at about 31%. 

Immigrant households tend to have less wealth than U.S.-born households, according to Pew Research. But immigrants also have higher upward mobility rates than native residents. People born in the U.S. to immigrant parents have greater median wealth than immigrants themselves, and longtime immigrant residents who arrived in the U.S. before 1990 have greater median wealth than people born in the U.S. 

Given the outlook for children of immigrant families, along with the boost to the labor market provided by immigrant workers and entrepreneurs, many immigration advocates see the cost to taxpayers as an investment in the future of the U.S. economy. Nevertheless, residents of cities with budgets strained by the migrant crisis may be negatively impacted in the short term. Denver will cut spring recreation programming by 25%, for example, due to devoting resources to serving migrants.

The Labor Market: Myth vs Reality

key tenet of anti-immigration rhetoric is the idea that immigrants steal jobs from U.S.-born workers. But the real impact of immigration is to spur economic growth in sluggish communities, creating more job opportunities for immigrants and native workers alike.

The net effect on job growth isn’t just neutral, it’s positive—because immigrants have a high tendency toward entrepreneurship, they create more job opportunities than they fill. Immigrants are more likely than U.S.-born individuals to start businesses of all sizes, from local mom-and-pop retailers to Fortune 500 companies. And those firms offer higher employee wages than native-founded companies. 

Immigrant workers also fill labor shortages in diverse ways. Since immigrants are more likely to be of working age, they create balance in the job market as baby boomers leave the workforce, often filling jobs in industries desperate for workers, like food service and hospitality.

Immigrants have also kept certain industries afloat, delaying job losses in the manufacturing industry, for example. Record-high immigration existed alongside record-low unemployment in 2023; there’s no reason to believe immigration poses a threat to the job market. 

But what about pay? Some say immigrants will accept lower wages, making it tough for U.S.-born workers to compete for the same jobs and get a fair wage. But the evidence shows income per capita has increased more in regions of the country that became home to an influx of immigrants. Several studies found that immigrant workers lower prices while boosting incomes, which may be due to the supportive role low-paid immigrant workers have in enhancing the productivity of higher-level workers, according to Brookings

The concentrated impact on new construction

Labor shortages in the construction industry during recent years have made it challenging and expensive to build new infrastructure and homes. In January, there were 422,000 job openings, nearly triple the number of positions available 10 years ago, according to the Bureau of Labor Statistics (BLS). And more than 20% of construction workers are 55 and older, nearing retirement age, while fewer young people are entering the trade, even as wages increase. 

But immigrant laborers seek jobs in the construction industry. In 2022, they held nearly 25% of construction jobs, a record high, and about 31% of all positions in the building trades. Deportation, or even decreased immigration, would exacerbate labor shortages, reduce new construction, and ultimately lead to even higher housing prices in supply-constrained areas. 

study published last year connects the dots between construction labor shortages induced by restrictive immigration policy and housing affordability. The report tracks a federal crackdown on immigration that began in 2008 and was implemented nationwide in 2013. More than 400,000 undocumented immigrants were deported during this time, leading to employment losses in the construction trade. 

Three years later, the impact on residential construction was profound: More than 1,000 fewer new homes were put on the market in the median county, and the average newly constructed home cost an extra $50,000 when compared to the baseline. 

Managing the Strain on Municipal Resources

However, while immigration plays an important role in a healthy housing market and economic growth, record-high immigration rates are draining city resources and costing taxpayers.

Many people assume that “open border policies” are to blame. But there are more border patrol agents than ever before, and enforcement actions against migrants are at an all-time high. Spending on immigration enforcement has increased rapidly over the last several decades, and President Biden’s 2025 budget proposal dedicates an additional $25 billion to Customs and Border Protection (CBP) and Immigration and Customs Enforcement (ICE). 

Increased immigration rates can be at least partially explained by the robust job market in the United States. People come here seeking steady work and higher wages, and the number of nonfarm job openings in the last few years has been significantly higher than in any of the three previous administrations. While many migrants believe they will find a legal path to staying in the U.S., approval rates for green card applications are at a record low

High immigration itself isn’t detrimental to communities or taxpayers—successful integration of immigrants into the workforce is ultimately beneficial to all citizens. Rather, the harm comes from insufficient manpower and underfunding for immigration courts relative to the elevated immigration rates, along with restrictive policies that hinder the legal immigration process. 

For example, Mayor Mike Johnston believes more work authorizations and a quicker path to temporary legal status would solve Denver’s struggle to provide sufficient services to new migrants. While many undocumented immigrants do pay taxes, new arrivals to sanctuary cities are often unhoused, relying on taxpayer-funded programs for medical care and other social services, though they are ready and willing to work and rent homes for their families. It is the difficult process of entering the workforce that leaves taxpayers to foot the bill while migrants wait for the U.S. to process a backlog of nearly 35 million green card applications. 

The Bottom Line

Because high immigration rates are disproportionately burdening some cities, policy initiatives should address those challenges. On the other hand, mass deportation or more restrictive policies could have negative consequences for the real estate market and the U.S. economy. 

Rather than attempting to reduce immigration, which could lead to economic decline, the U.S. should focus on providing legal pathways for immigrants to enter the country and join the workforce. 

Ultimately, real estate investors can follow immigration trends when making investment decisions to capture the increased revenue potential created by immigrant demand for housing in local markets.

This is a complicated and controversial issue, and we know there’s more to be said. Leave a comment below about what you think!

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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.

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