Reihan Salam replies to my case for free immigration, emphasizing the importance of “social capital”:
It is possible that cash transfers are the most appropriate vehicle for
addressing problems that stem from cultural and economic isolation and
family breakdown, but my sense is that integration into the broader
society will prove the more fruitful strategy. This might be somewhat
easier to achieve if the flow of new less-skilled migrants from the same
source communities is reduced.
My article argued that social capital is overrated for the following reason:
[I]f you equate “culture” with “trust” or “social capital,” real estate markets are a helpful measuring stick. If social capital is important and immigration has large negative effects on an area’s social capital, then immigration would cause housing prices and rents to fall. Immigrants would directly increase housing demand by renting and buying homes, but indirectly decrease housing demand by making their destinations unpleasant places to live. In fact, as discussed earlier, immigration has a strong positive effect on cities’ real estate prices (Gonzalez and Ortega 2009; Saiz 2003, 2007). If immigration hurts trust or social capital, the effect must be small.
Salam’s not convinced:
I was surprised by Caplan’s argument that real estate values are a
helpful measure of social capital in a given region, as there are
presumably many confounding variables. Would real estate values in
high-productivity regions be markedly lower if, say, the share of
skilled migrants was much bigger while the share of less-skilled
migrants was much smaller?
Let me spell out my argument in more depth. My key premise isn’t that “real estate values are a helpful measure of social capital,” but that real estate values are a helpful measure of quality of life. The better an area’s package of beauty, convenience, culture, opportunity, safety, schools, etc., the pricier its real estate becomes. So if…
(a) immigration has a big negative effect on social capital, and
(b) social capital matters a lot for quality of life
…then immigration should reduce real estate values. To see the argument more clearly, imagine if immigrants all carried bubonic plague. As soon as plague-infested immigrants moved to an area, natives would flee in terror, and local real estate prices would plummet. Immigrants would directly increase the demand for housing by renting and buying, but the indirect effects of their deadly presence would heavily outweigh that direct effect.
The empirical evidence on immigration shows nothing remotely like this. The admittedly small number of papers on the topic all find that immigration sharply increases real estate prices – 1% more people implies roughly 1% higher prices. This doesn’t rule out some negative effect of immigration; maybe real estate prices would have risen by 1.5% if the immigrants were “our kind of people.” But as long as real estate prices go up in response to immigration, the idea that immigrants are seriously tearing our social fabric is far-fetched.
Salam’s probably right to think that skilled immigration would do more for real estate prices than unskilled immigration. Skilled immigrants have higher willingness to pay, and on average make better neighbors. But that hardly shows that low-skilled immigration is bad. Yes, if there’s a fixed quota of immigrants, more unskilled immigrants mean fewer skilled immigrants. The whole point of my piece, though, is that immigration quotas should be abolished. We don’t have to weigh skilled immigrants against unskilled immigrants. As long as they get jobs with willing employers and rent apartments from willing landlords, the more the merrier.
READER COMMENTS
Steve Sailer
Jan 31 2012 at 1:42am
“then immigration would cause housing prices and rents to fall”
Bryan, you really need to pay more attention to current events. You were saying this during the Housing Bubble, yet you keep on saying it as if the events of the last half-decade didn’t happen.
Massive Hispanic immigration in the four Sand States (CA, AZ, NV, FL) helped pump up the Housing Bubble, but then prices collapsed in rapidly Hispanicizing areas, such as California’s Inland Empire.
In California’s 20 biggest metro areas, the correlation between percentage of mortgage dollars in 2006 going to non-Asian minorities (chiefly Latinos) and the 2009 foreclosure rate was 0.81.
http://www.vdare.com/articles/the-gods-of-the-copybook-headings-with-terror-and-slaughter-aka-the-minority-mortgage-meltd
stephen
Jan 31 2012 at 8:24am
“but that real estate values are a helpful measure of quality of life.”
In about 25 to 30% of my neighborhood you have 2, 3, sometimes 4 families (its tough to count because there seems like a lot of single men as well) living in a single family unit. One duplex could contain something like 25 people. There are entire apartment complexes like this. This is how they are able to afford the rent. Just an anecdote, but a pretty robust one if you are talking about the southwest.
Alex Nowrasteh
Jan 31 2012 at 8:38am
Steve Sailer excluded Texas from his analysis. It has a rapidly growing Hispanic immigrant population but the housing price collapse that happened in CA, AZ, NV, and FL was much smaller in Texas, especially Houston and Dallas.
The smaller price rise in Dallas and Houston and subsequently smaller decline had more to do with local planning policies in Dallas and a lack of zoning in Houston than who was renting/buying real-estate. If CA, NV, AZ, and FL governments weren’t busy trying to plan real-estate developments through governments they wouldn’t have faced the massive price increase then decline either.
Also, AZ’s housing price decline was aggravated by the Employer Sanctions Law and SB1070, both of which caused tens to hundreds of thousands of people to leave AZ (gross). That affects the housing price downward.
The price decline certainly didn’t hinge on Hispanics or immigrants otherwise Texas would show a similar decline as AZ, CA, NV, and FL. Texas doesn’t show a similar decline so the source of the housing price decline lies elsewhere.
Here’s a Houston HPI:
http://www.forecast-chart.com/estate-real-houston.html
20 city composite HPI:
http://www.ibtimes.com/articles/289835/20120130/case-shiller-housing-index-january-more-declines.htm
Slim934
Jan 31 2012 at 8:42am
I do not think the reasoning for this argument is nearly as strong as it is for the other open immigration arguments.
As other commenters pointed out, there are numerous confounding variables which will do harm to this kind of analysis. For example, if migrants move to an area which has extremely tight land-use regulation then this analysis largely will go out the window. If a huge influx of immigrants moves to an area like this (see California), the price of the constrained supply of houses will go up regardless of the supposed “social capital” that immigrants bring with them. It is true that the price does not plummet as in the bubonic plague example, but conversely one cannot possibly say that the price increase they bring about would be due even in large part to some increase in social capital.
Adam
Jan 31 2012 at 8:52am
Real estate prices only measure willingness to pay for quality of life when people have the same preferences. Different social/cultural capital endowments create different preferences.
Ken B
Jan 31 2012 at 9:05am
Yes, increasing demand often drives down price, especially when the supply cannot increase.
stephen
Jan 31 2012 at 9:39am
Alex,
One of the biggest reasons (the biggest?) we did’t get as bad a bubble in Texas is because we were still recovering from a really bad housing bust as a result of the S&L crisis in the 80s.
If you look at the Texas housing market at a lower level, it is far from roses. If you bought a few years before the bust it is impossible to sell unless you don’t mind loosing most/all of your equity.
If you look at adjacent neighborhoods, one heavily hispanic, one gentrified, you will see a factor of about 2 in average home price. And if you look at the first derivative in housing prices since the crisis the hispanic neighborhood will be negative, the other will be slightly positive.
Alex Nowrasteh
Jan 31 2012 at 12:02pm
Stephen,
I didn’t write that the housing market was “rosy” in Texas, just that the boom and decline were very much more moderate than the 4 choice examples that Steve Sailer pointed out.
Your post also supports my original point. Factors other than immigration generally and Hispanic immigration more specifically drove the boom and bust.
Alex
The Snob
Jan 31 2012 at 12:23pm
I live in East Boston, which is about 52% Hispanic and has gentrified slightly to moderately over the past decade. It is a fairly safe neighborhood with good mass transit and plenty of decent-quality homes. Prices dropped like a rock during the bust but have risen fairly steadily over the past two years, though it is still seen as a very affordable part of the city.
South Boston is slightly closer to the city core, famously majority-white, and for the most part slightly though not all that much safer. It started gentrifying at least five years sooner, and at a much faster rate with a lot of high-priced bobo loft buildings going up throughout the neighborhood.
Charlestown is about as proximate to downtown as East Boston, about as white as Southie, and started gentrifying back in the early-mid 90s and parts are seen as slightly prestigious. Crime seems considerably higher, at least from anecdotes of car thefts, break-ins, etc. among friends who live in the “good” parts of The Town, and the level of general hooliganism there is quite high. Parts of Charlestown are home to the sort of entrenched multi-generational poverty typically associated with the worst parts of black America.
I’ve always suspected that yuppies like me were able to stomach Charlestown and Southie because the thugs are white like us, whereas in Eastie they’re more likely to be brown-skinned and Spanish-speaking, and thus more reflexively threatening.
sourcreamus
Jan 31 2012 at 4:17pm
It seems like a neighborhood survey would be more helpful than a city wide comparison. If people are leaving an immigrant filled neighborhood to move to a pricier one that would tend to increase the price of real estate.
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