The Research Institute for Housing America (RIHA), an independent research trust fund of the Mortgage Bankers Association of America (MBA), today released a study, Homeownership in the Immigrant Population, that documents immigration trends during the 1980s and 1990s and the effects of those trends on housing markets.

The study, conducted by Professor George Borjas of the Kennedy School of Public Policy at Harvard University, found that a large gap initially exists in homeownership rates between immigrants and similar native-born households. Moreover, that the gap has been getting larger, in part reflecting the changing economic status of new entrants.

An equally important finding is that in the past the homeowner gap largely has been closed over time, as immigrant households are assimilated into housing markets. This process will be a significant boost to housing and mortgage demand; the MBA estimates that immigrants now in the US could create the demand for 4 million or more new homes over the next decade or two. The study points out, however, that the rate of assimilation will depend upon such factors as the local market in which they chose to settle and speed at which different the national origin groups adopt the housing preferences of native-born households.

Immigration to the U.S. has surged during the past two decades, with the annual influx of legal entrants more than doubling in the 1990s when compared to the 1970s. The composition of immigration also has changed, with nearly half of all foreign-born households estimated to have come from Latin America and almost one-third from Asia in the 1990s. Both the increased volume and changing composition of immigration have been major factors in the demographic dynamics of the nation.

"Professor Borjas' study clearly points out that foreign-born households will have an important influence in many housing and mortgage markets in the coming years, as they are assimilated into homeownership," said Douglas Duncan, MBA Senior Vice President and Chief Economist. "We will see the greatest impact in areas of the country such as Los Angeles and many other Western cities, Miami and New York where large concentrations of immigrants are already living."

The study shows that immigration primarily affects rental housing markets in the short run. However, the demand generated by foreign-born households for homes and home mortgages will be an increasingly important factor in many parts of the country in the coming years.

"This represents both a challenge and opportunity for mortgage lenders who will be seeking this important source of business as well as homebuilders and policy makers concerned with stimulating the production of affordable housing," said Duncan.

The study highlighted four key points:

1. "Homeownership Gap" is large and getting larger. The study shows that in 2000 the homeownership rate was 67% for native-born households but only 47 percent for immigrant households.

   This 20 percentage point difference is up from a "gap" of just over 15 percentage points ten years earlier.

   Another way of seeing this trend is to look at newly-arrived immigrants; see Chart 1. In 1980 just over 19 percent of the immigrants that had arrived in the country during the previous 5 years owned their own homes. By 2000 that figure for recent immigrants had fallen to under 15 percent.

   The homeownership gap relative to native-born households is particularly wide for many groups of immigrants of Hispanic origin, even after adjustment for income and household composition. Overall, the study estimated the homeownership rate of Hispanic immigrants in 1980 to be only 34 percent.

2. Over time much of the gap between native and foreign born households closes, as immigrants join the ranks of homeownership. However, the study points out that this is a long-term process. The study points out that this reflects both the relatively short tenure of many immigrants in the country as well as the growth in importance of immigrants from countries that have low initial homeownership rates.

   For instance, almost 60 percent of the immigrants that arrived in the country between 1975 and 1979 now own a home. Among that same group only 19-1/2 percent were homeowners in 1980.

   Nationally, based on the Borjas study, the MBA estimates that if even if the 20 percentage point homeownership gap were lowered to 5 percentage points, four million or more new homeowners could be created in the next two decades.

3. Many markets in the nation have a particularly high concentration of immigrants. The assimilation of immigrants will be an important source of demand in many local housing market and mortgage markets. Of particular note, is the potential demand from closing the homeownership gap is quite high for Hispanics in many markets.

4. The likelihood of a new immigrant becoming a homeowner depends upon the local market in which the household settles. Like native-born households, the study shows that both household demographics and family income and are important factors in whether a foreign-born family owns their own home.

   However, the statistical findings of the study show that "ethnic enclaves" of earlier immigrants of the same national origin significantly increases the probability that immigrants will become homeowners.

   In contrast, the study found that, in many areas with high concentrations of immigrants, local housing market conditions negatively affected homeownership rates for both native- and foreign-born households. New York, San Francisco, and Los Angeles areas are examples of such areas.

Published: March 29, 2002

Use of this article without permission is a violation of federal copyright laws.