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The Anatomy of Rent Burdens: Immigration, Growth, and Rental Housing

From: Brookings-Wharton Papers on Urban Affairs
2004
pp. 149-205 | 10.1353/urb.2004.0006

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Brookings-Wharton Papers on Urban Affairs 2004 (2004) 149-205

Immigration, Growth, and Rental Housing

Erica Greulich

University of California, Berkeley

John M. Quigley

University of California, Berkeley

Steven Raphael

University of California, Berkeley
[Comments]

During the past three decades, shelter payments for renter households have become more burdensome, especially for poor households and households residing in large urban areas. Between 1970 and 2000, the median rent burden increased from 20 to 25 percent of income. For the poorest fifth of households, the proportion of income devoted to housing increased from 0.51 to 0.55. Concurrently, the proportion of low-income households devoting greater then 30 percent of their income to housing expenditures increased from 67 percent to 79 percent. There have been no comparable increases in housing expenditures among high-income renters or high-income homeowners.

During this period, the foreign-born population residing in the United States has experienced sustained growth and has contributed disproportionately to overall population growth. In 1970 the foreign born accounted for 4.7 percent of the resident population of the United States. As of 2000, this figure had increased to 10.4 percent. In these three decades, the resident immigrant population increased by 16.2 million persons, accounting for roughly one-quarter of overall net population growth in the United States.

Several factors, in combination, suggest that international migration may affect the housing outcomes of many households headed by the native born. Within the United States, the foreign born are disproportionately concentrated in six states (in order of importance, California, New York, Florida, Texas, New Jersey, and Illinois) and a handful of metropolitan areas. The concentration of immigrants in selected metropolitan areas coupled with very low housing supply elasticities implies that a large influx of immigrants may result in substantial increases in housing prices and rents in those areas.

Moreover, recent immigrants to the United States are, on average, considerably less educated than natives, have lower incomes, and are more likely to reside in rental housing. Immigrant households are thus likely to compete for housing with low-income natives—the very group that has experienced increasing rent burdens in recent decades.

The effect of immigration on housing prices depends on two factors: the extent to which the U.S. destination choices of international immigrants are exogenous to the current economic conditions at those destinations; and the speed at which population flows among U.S. cities and housing supplies in those cities adjust to variations in exogenous immigration. There is a wealth of literature suggesting that the destinations chosen by international immigrants are heavily dependent on noneconomic factors—the prior decisions of extended family members and the prior existence of enclaves of immigrants from the same country or region of origin, speaking the same language, with the same cultural tradition. Documentation of these locational proclivities among cities and regions (but also across neighborhoods) exists for nineteenth-century immigration to the United States and for twentieth-century migration. Current U.S. immigration policy, with its explicit preference for family reunification, suggests that the choice of destination for new immigrants is less responsive to economic conditions at the destination than would be expected on the basis of a utility-maximizing calculus explicitly taking housing costs into account.

There is convincing evidence that large-scale international immigration to an exogenously determined destination does affect housing prices in the short run. Independent studies by Susin and Saiz analyzed the effects of the Mariel Boatlift, in which 125,000 Cubans migrated to Miami over a five-month period in 1980. Both authors found a consequent rise in rental housing prices in Miami, especially for lower-quality housing in minority neighborhoods. These price changes were observed over a relatively short time interval, 1979 to 1983.

Over a longer period, it is less clear that exogenous levels of immigration affect price levels. Indeed, in a model of systems of cities, the effect of an exogenous shock of international migration to housing prices in a given city must be vanishingly small. In the absence of transaction costs, the effects of an exogenous increase in immigration to a single city will be partially offset by outmigration of both the native born and...



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