The Effect of Arizona’s Immigration Enforcement Legislation on Housing Prices and Rents Christopher Fletcher UW-Milwaukee Wisconsin Economic Association

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 November 10, 20122Wisconsin Economic Association

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 November 10, 20123Wisconsin Economic Association

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 29 th July 28 th 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 November 10, 20124Wisconsin Economic Association

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 logs November 10, 20125Wisconsin Economic Association

Table 1: Rental Rate Regressions * Implies significant at 1% CPIFMR IIIIIIIV Lead (0.012)(0.011)(0.038)(0.033) Treatment (0.012)*(0.011)*(0.032)*(0.033)* Lag Ln(AWW) (0.176)*(0.082)* Lag Ln(Unemp) (0.024) (0.015)* Newey-West SEYes No Clustered SENo Yes Year EffectsYes Individual FEYes R² N NT November 10, 20126Wisconsin Economic Association

Table 2: Housing Price Regressions * Implies significant at 1% State LevelMSA Level IIIIIIIV Lead Effect M M3(0.019)*(0.013)*(0.035)*(0.026)* Law Passed M4-2010M7(0.021)*(0.023)*(0.036)*(0.029)* Law Implemented M8-2011M9(0.021)*(0.019)*(0.034)*(0.026)* Lag Ln(AWW) (0.06)*(0.090)* Lag Ln(Unemp) (0.013) (0.017)* Clustered SENo Yes Newey West SEYes No Month and YearYes FEYes R² N NT November 10, 20127Wisconsin Economic Association

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. November 10, 20128Wisconsin Economic Association