The Effect of Arizona’s Immigration Enforcement Legislation on Housing

Prices and Rents

Christopher FletcherUW-Milwaukee

Wisconsin Economic Association11-10-2012

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

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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

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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

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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 logsNovember 10, 2012 5Wisconsin Economic Association

Table 1: Rental Rate Regressions

* Implies significant at 1%

CPI FMR I II III IVLead -0.006 0.000 -0.016 -0.02

(0.012) (0.011) (0.038) (0.033)

Treatment -0.085 -0.073 -0.083 -0.10(0.012)* (0.011)* (0.032)* (0.033)*

Lag Ln(AWW) 0.845 0.522(0.176)* (0.082)*

Lag Ln(Unemp) -0.017 0.064 (0.024) (0.015)*Newey-West SE Yes Yes No NoClustered SE No No Yes YesYear Effects Yes Yes Yes YesIndividual FE Yes Yes Yes YesR² 0.79 0.78N 27 27 366 366NT 270 216 4026 3660

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Table 2: Housing Price Regressions

* Implies significant at 1%

State Level MSA Level I II III IV

Lead Effect -0.193 -0.146 -0.121 -0.1012009M12-2010M3 (0.019)* (0.013)* (0.035)* (0.026)*

Law Passed -0.217 -0.158 -0.152 -0.122010M4-2010M7 (0.021)* (0.023)* (0.036)* (0.029)*

Law Implemented -0.313 -0.269 -0.228 -0.2112010M8-2011M9 (0.021)* (0.019)* (0.034)* (0.026)*

Lag Ln(AWW) 0.752 0.786(0.06)* (0.090)*

Lag Ln(Unemp) -0.245 -0.227 (0.013) (0.017)*

Clustered SE No No Yes YesNewey West SE Yes Yes No NoMonth and Year Yes Yes Yes Yes

FE Yes Yes Yes YesR² 0.509 0.599N 50 50 366 366

NT 6350 6300 46116 45750

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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.

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