Homeownership in the Immigrant Population

Title: Homeownership in the Immigrant Population

Date: 3/1/2002

Author(s): George Borjas

Executive Summary:

Housing and mortgage markets like all aspects of American society have grown more diverse in recent years. A major factor in that regard is the role of immigrants. Both the absolute number of immigrants entering the country and the changing composition of that inflow are major factors in the demographics of the nation. For that reason, the Research Institute for Housing America of the Mortgage Bankers Association asked Professor George Borjas of the Kennedy School of Public Policy at Harvard University to look at the effects recent trends in immigration are having on housing markets.

Professor Borjas' research establishes several important points. First, as might be expected, new immigrants are more likely to rent, and less likely to be homeowners, than their peers in native-born population. The gap in homeownership rates between immigrants and native households is shown to have widened in recent years. However, the study also shows that historically immigrants have been well assimilated into the housing market, as the homeownership gap between natives and immigrants narrows markedly as the immigrant's tenure in the country lengthens.

Professor Borjas' research confirms that those social and economic factors that affect the housing markets decisions of native-born households are significant for immigrants as well. On the demand side of the market, like native-born households, homeownership increases as the income and educational levels of immigrants rise. He also finds albeit indirectly that market factors such as housing prices and the structure of the housing stock also matter, as the traditional housing literature would suggest. Nonetheless, the research results show that such traditional influences explain only part of the lower homeownership rate among the immigrant population.

A key finding of the study is the emergence of two factors in explaining homeownership rates among immigrant households: national origin and the presence of fellow countryman and women in the areas in which immigrants choose to locate. Since the preferences for how much one spends on housing and on the importance of owning varies widely in other countries, the fact that the taste for home ownership varies among immigrants of different nationalities is not surprising. This is more than an issue of lifestyles, although that likely is an important matter. As Americans who go abroad to discuss how our housing and mortgage markets work soon find out, many countries have very different legal and institutional arrangements with respect to the ownership of real property and lending on such collateral. For instance, notions of legal title and of problem loan remediation through foreclosure often differ widely from the American experience. Thus, it is not surprising that many immigrants would view the housing decision to rent or buy differently from native-born Americans.

Professor Borjas also found that locating in a metropolitan area that already had a large concentration of immigrant household of the same nationality significantly increased the probability that an immigrant household would become a homeowner. Having others who have experienced both worlds and can help the new immigrant is likely to be a big positive. Also, local participants from the sell side of the market will have had experience in dealing with those differences.

The importance of national origin and of ethnic concentration have clear implications for both to business practice and policy formation. The empirical importance of such differences in explaining homeownership rates, after taking account of socioeconomic variables, suggests marketing opportunities for both providers of rental housing and those producing and financing ownership units. However, the unique challenges and opportunities to meeting the housing needs of immigrant households must be studied and understood. To successfully reach the potential immigrant homebuyer or mortgage borrower, a business will either have to tap into the support system provided by the existing local immigrant community or emulate the education and support that community provides to immigrants through outreach programs.

For government policy makers, the lessons are equally clear. To achieve the goal of increasing overall homeownership rates, it is essential to increase opportunities among those groups with well below average access to homeownership. This paper demonstrates that immigrants are such a target group and successful policies are likely to be ones that are based on those factors that their peers are providing which positively affect homeownership among immigrants. The next research step that would be helpful in this regard is a study of just how immigrants interact with their local communities in making their housing and mortgage finance decisions.