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Working Papers

Immigration and the Neighborhood

Working paper #527
Albert Saiz and Susan M. Wachter

What impact does immigration have on neighborhood dynamics? While there is evidence of a strong positive effect of immigration on average housing values at the metropolitan area level, we do not know much about its relative impact at the neighborhood level. Immigration raises the demand for housing in the metropolitan areas where immigrants concentrate, but immigrant enclaves may be perceived by some natives as relatively less attractive neighborhoods. Within metropolitan areas, we find evidence that housing prices have grown relatively more slowly in areas of dense immigrant settlement. We propose three nonexclusive explanations for this fact: changes in quality, reverse causality (immigrants are attracted by areas where housing prices are declining in relative terms), or the hypothesis that natives find immigrant enclaves relatively less attractive. We find that the three explanations are quantitatively important. We deploy a “social diffusion” model based on a gravity equation that predicts the number of new immigrants in a neighborhood using past densities of the foreign-born in the surrounding neighborhoods. We use the predictions of this “diffusion” model to instrument for the actual number of new immigrants in a census tract. Subject to the validity of our instruments, the evidence is consistent with a causal interpretation of a modest impact from growing immigration density to relatively slower housing price appreciation, but this impact is smaller than what OLS results would suggest. Further results indicate that these results may be more driven by the fact that immigrants are of low socio-economic status than by nationality per se. Given the growing demographic importance of immigration in the US, the results do not bode well for the expeditious disappearance of the new “immigrant ghetto.”

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