The Effect of Arizona’s Immigration
Enforcement Legislation on Housing
Prices and Rents
Christopher Fletcher
UW-Milwaukee
Wisconsin Economic Association
11-10-2012
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
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Wisconsin Economic Association
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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
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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 29th 2010.
• July 28th 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
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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
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Table 1: Rental Rate Regressions
CPI
Lead
Treatment
I
-0.006
(0.012)
FMR
II
0.000
(0.011)
III
-0.016
(0.038)
IV
-0.02
(0.033)
-0.085 -0.073 -0.083
-0.10
(0.012)* (0.011)* (0.032)* (0.033)*
Lag Ln(AWW)
0.845
(0.176)*
0.522
(0.082)*
Lag Ln(Unemp)
Yes
No
Yes
Yes
-0.017
(0.024)
Yes
No
Yes
Yes
27
270
27
216
0.064
(0.015)*
No
Yes
Yes
Yes
0.78
366
3660
Newey-West SE
Clustered SE
Year Effects
Individual FE
R²
N
NT
No
Yes
Yes
Yes
0.79
366
4026
* Implies significant at 1%
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Table 2: Housing Price Regressions
Lead Effect
2009M12-2010M3
State Level
I
II
-0.193
-0.146
(0.019)* (0.013)*
MSA Level
III
IV
-0.121
-0.101
(0.035)* (0.026)*
Law Passed
2010M4-2010M7
-0.217
(0.021)*
-0.158
(0.023)*
-0.152
(0.036)*
-0.12
(0.029)*
Law Implemented
2010M8-2011M9
-0.313
(0.021)*
-0.269
(0.019)*
-0.228
(0.034)*
-0.211
(0.026)*
No
Yes
Yes
Yes
0.752
(0.06)*
-0.245
(0.013)
No
Yes
Yes
Yes
50
6350
50
6300
Yes
No
Yes
Yes
0.509
366
46116
0.786
(0.090)*
-0.227
(0.017)*
Yes
No
Yes
Yes
0.599
366
45750
Lag Ln(AWW)
Lag Ln(Unemp)
Clustered SE
Newey West SE
Month and Year
FE
R²
N
NT
* Implies significant at 1%
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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.
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Wisconsin Economic Association
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