Looking for the link between immigration and housing values

 Wharton real estate professor Albert Saiz says he was "shocked" at how much the

Wharton real estate professor Albert Saiz says he was "shocked" at how much the presence of immigrants can turn off non-immigrants.

Immigrant enclaves have been part of U.S. cities for 200 years, changing the faces of neighborhoods from New York to Los Angeles.

Today, U.S. cities continue to change, as American borders welcome 800,000 legal immigrants annually.

But not much is known about how immigrants change the dynamic of specific neighborhoods. Do people tend to take flight when the demography of the neighborhood changes? Is there a negative reaction or a positive outcome?

Albert Saiz and his colleague, Susan Wachter, set out to find these answers.

Saiz, an assistant professor of Real Estate in the Wharton School and Wachter, a professor of Real Estate, Finance and City and Regional Planning, are trying to understand how an influx of immigrants can impact specific areas of a city—for good or bad.

Saiz is hardly a stranger to the field, having previously studied the impact of immigration on American cities. In those studies, he used census data to compare the effects of immigration in port and “destination” cities (such as Miami and New York) and noted that immigration has a positive effect on moderate housing values and wages. Housing demand jumps when immigrants move to town.

But in their work together so far, Saiz and Wachter have found immigration has a different effect on individual neighborhoods. Generally, housing prices in every city are rising, but the researchers’ early findings suggest that an influx of new immigrants to a neighborhood may actually slow growth in housing values and rental prices. “Rental prices grow less fast in places where immigrants tend to settle,” says Saiz. “It’s a tide that doesn’t raise all boats, really.”

There may be several reasons for this trend. Saiz says because immigrants tend to be less educated than “natives” (and, thus, pursue lower paying jobs), they may move into low-rent properties within a metropolitan area where housing prices typically do not grow as fast. Another reason—which he notes may account for only a small part of the trend—is that the style of houses favored by immigrant populations may themselves fall out of fashion and cause a decrease in value. Also, Saiz and Wachter have found people may flee the neighborhood (in a process known as “native flight”) when they perceive a slowing in growth and housing value.

While Saiz says their research indicates the flight may be due more to economics rather than an aversion to ethnicity, “people perceive immigrant enclaves as not that attractive,” he says. “That negative correlation shocked us.”

Saiz urges further research that focuses on specific neighborhoods, income level and ethnicity. “A lot more case-by-case research is needed at this point,” Saiz says.

Originally published on November 18, 2004