It's immigration stupid
|January 23, 2003|
Foreign-born add market support from the ground up
By Steve Kropper
Immigration is the key driver of primary housing demand in the United States and explains why home prices aren't headed toward a fall. The flood of immigration is untouched and continues unabated. Immigrants keep the housing market flush with first-time buyers, who come in at the bottom and support the market as they move up the housing ladder. Immigrants comprise roughly 11 percent of all resale home transactions.
A brief history of immigration explains its impact on housing:
In 1957, the U.S. population was 171 million and Elvis had two top 10 hits. The U.S. birth rate reached its high point at third world levels: an average of 3.8 children per woman. Today the country has 100 million more people than it had in 1957!
In 1980, I was living in my first house, and the U.S. population was 226 million. The '80s added 22 million souls. That was like adding an additional city of Atlanta and all of its sprawl every two years!
1990 was a milestone year. The population reached 250 million, a whopping 47 million increase from 1970, but the nation came close to stabilizing its population. Families had just 1.9 children, a figure right around the stable replacement level.
In 1990, I was living in my third house. Home prices had just fallen 7 percent in Massachusetts, and it took five years for me to recover my loss. Domestic population stability was overshadowed when immigration rules were loosened and the floodgates opened for legal and illegal immigration.
During the '90s, the immigrant population increased 57 percent to 19 million people, and the foreign-born proportion of the population rose to almost 8 percent. More than one-third of population growth in the 1990s was due to immigration, which added 1.1 million people annually. The higher birth rate among immigrants compounded the effect of immigration beyond the first generation.
Today almost 25 percent of the U.S. population is foreign born, and the forecast for legal immigration in the next five years suggests the nation will add another 10 million people during that time. With new home construction at just over 1.25 million units a year, immigration could fill half of the future new home demand pipeline.
In the 1990 U.S. Census, six states held 75 percent of the immigrant population, but only 39 percent of the housing stock. Immigration is concentrated in California, New York, Texas, Florida, New Jersey and Illinois. Other states are affected by migration of people arriving from outside the country or from other states.
Did you know Massachusetts has more people per square mile than Haiti has? Or that Colorado's population increased by 1 million people in just 10 years. Once-pleasant Fort Collins has suffered 28,000 new residents in the last 10 years.
Do you plan to move to Missoula? Do your kids plan to get jobs in Idaho Falls? I doubt it. Fort Collins notwithstanding, they are more likely to move to Washington, D.C., Phoenix, Ariz., or Las Vegas. National Geographic depicts bison standing in a vast emptiness, and America is a country of wide-open plains and infinite space. But you, me, our kids and immigrants aren't headed to North Dakota. We're moving to Walnut Creek, Colorado Springs, Bethesda, Norcross and Jacksonville. Are you planning to move to a fly-fishing state where the cows outnumber the people?
The National Association of Realtors for years has promoted the immigrant market as an opportunity for its aging Realtor membership. Roughly one-third of homes were sold to first-time home buyers and about one-third of first-time buyers were immigrants. The Mortgage Bankers Association, Fannie Mae, Freddie Mac, major banks and myriad federal programs provide initiatives to help immigrants become homeowners. In 2000, immigrants from Mexico were the largest group, comprising just over a quarter of the foreign-born residents of the United States. China, the Philippines, India, Cuba, El Salvador, Vietnam and Korea provided another quarter.
Of the 6 million homes sold each year, about 10 percent or 600,000 homes are sold to immigrant first-time buyers. If immigrant home buying is concentrated in the resale sector, not new construction, then immigration is even more important, accounting for perhaps 12 percent of the resale housing market. That's a market in which prices and growth are sensitive to new customers, including foreign-born ones.
Last week, I hid in a cave for my quadrennial immersion deep into the minutia of housing statistics. The state variations in home ownership rates fascinate me. I am used to New York being at the bottom (Big Apple apartment dwellers?) and West Virginia being near the top (affordability trumps growth). But what surprised me this time was that home ownership in California--a top immigrant destination--was an astoundingly low 58 percent or 10 points below the national average.
Looking deeper, I found a correlation between low home ownership rates and double-digit immigration states. But a correlation doesn't prove causation. What causes low home ownership rates in top immigration destinations? Does immigration push up demand and put pressure on prices, making housing unaffordable? Or is there a natural time lag while immigrants build the capital to become homeowners? More study is warranted.
People want cheap labor to mow lawns, prepare fast food, skin chickens and even build homes. And immigration provides demand that supports housing growth and the current home price levels. Population growth benefits the value of homes, but devours open space and wills a more crowded America to the next generation. Our children will have to worry about disappearing cornfields in Fort Collins, golden hillsides in Vista, leveled woodlands in suburban D.C. and filled wetlands in Fort Meyers.
Immigration is safe as a key driver of housing growth and price rises because there is no national plan or consensus to change the nation's immigration policy. There is no likelihood that the gates will be closed on immigration, a key driver in housing demand.
Steve Kropper is VP for strategy at Primedia, which owns RealEstate.com and Domania. He is focused on Boston-based Domania's customer retention and customer acquisition products for the real estate and mortgage sectors.
Copyright 2003 Steve Kropper