The recent increase in immigration has ignited discussions about the role immigrants play in the housing market, especially regarding housing costs. This conversation is urgent due to the ongoing affordability crisis, where half of all renters face cost burdens and many individuals struggle to afford homeownership. Interestingly, the recent rise in immigration does not align with the significant increases in rents and home prices observed at the start of the pandemic. Although immigrants contribute to household growth, the current housing demand is largely driven by native-born households amid limited housing supply. So, what does the data reveal about immigrants’ influence on housing demand and supply during this period of rising costs?
Immigrants significantly impact household growth and housing demand, although their contribution fluctuates over time. This fluctuation is largely influenced by changes in native-born household formation. For instance, from 2010 to 2015, foreign-born households accounted for 50% of household growth due to weak native-born household formation following the Great Recession, according to data from the American Community Survey (ACS). However, as native-born household formation increased before the pandemic, immigrants represented only 23% of household growth from 2015 to 2019.
During the pandemic, while rents and home prices soared, immigrants did not lead household growth. From 2019 to 2023, foreign-born householders comprised just 25% of household growth amid a surge in native-born households. By 2023, 16% of all households—approximately 21 million—were headed by an immigrant. This data encompasses both documented and undocumented immigrants.
Data Overview: Household Growth by Nativity
Recent statistics indicate that household growth has primarily stemmed from native-born individuals rather than immigrants during the pandemic. The trend is particularly evident in the years 2019 to 2023, characterized by significant native-born household growth.
According to the Congressional Budget Office (CBO), immigration rates surged in 2022 and 2023, rising from an average of 990,000 in 2020 and 2021 to 2.7 million in 2022 and 3.3 million in 2023. However, this spike in immigration does not coincide with the steep increases in home prices and rents observed earlier. Home prices rose sharply in 2020 and 2021, and rents rebounded quickly after a slight decline in 2020. After immigration levels increased in 2022, the growth rates of home prices and rents slowed significantly. By 2023, as immigration continued to rise, home price growth diminished even further, and rent growth stalled completely.
Understanding the Drivers of Rising Housing Costs
If immigration is not the primary factor behind the rise in housing costs, what is? A major influence has been the millennial generation (born 1980-1994), which is currently in its prime homebuying years (ages 26-40 in 2020). This generation has faced years of pent-up demand due to delayed household formation following the economic impact of the Great Recession. The pandemic further intensified the demand for more spacious housing, particularly among remote workers, leading to increased household formation and a preference for larger homes or apartments.
Additionally, the Federal Reserve’s rate cuts at the pandemic’s onset led to historically low 30-year mortgage rates, dipping below 3.5% in April 2020 and reaching a low of 2.65% in January 2021. These lower rates spurred increased housing demand as buyers sought to capitalize on the improved purchasing power. The combination of this heightened demand and a constrained housing supply—resulting from years of underproduction following the Great Recession—put substantial pressure on home prices and rents, as an increasing number of renters competed for a limited rental market.
Immigrants’ Role in Housing Supply
While immigrants contribute to housing demand, they also help expand the supply of much-needed homes. In 2023, immigrants made up 34% of the construction workforce, significantly higher than their 18% share of the overall labor force, according to ACS data. This share is particularly high in the West and South, where immigrants represent 40% of all construction workers. The states with the largest immigrant shares in construction include California (52%), New Jersey (52%), Texas (51%), Maryland (50%), and Nevada (48%). Occupations with the highest proportions of immigrant workers include plasterers (61% foreign-born), drywall installers (61%), roofers (52%), painters (51%), and carpet/floor/tile installers (45%).
Long-Term Implications of Immigration for Economic Growth
In the long run, population and labor force growth are essential for a healthy economy and expanding opportunities. However, with the aging baby boom generation and declining birth rates, natural population change (births minus deaths) in the United States is expected to become negative by 2040. At that point, the country will rely entirely on immigration for population growth. While the recent surge in immigration poses challenges in the short term, immigrants will remain a vital source of economic growth in the future. Without immigration, household growth is expected to slow considerably over the next decade, significantly hindering economic growth, as upcoming household projections will demonstrate.
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