Finance & economics | Insular politics
Nativists say that migrants raise house prices, cost money and undermine economic growth. Do they have a point?
Illustration: Lucas Burtin
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Nothing unites and propels the world’s nationalists quite like hostility to immigration. And in the 2020s there has been lots of it: the number of long-term migrants to the rich world rose by 28% from 2019 to 2023. This wave has helped Donald Trump return to the White House and benefited hard-right parties across Europe. Immigration is arguably the present era’s defining political issue.
Chart: The Economist
Moreover, it is not just the number of arrivals that has changed. The arguments nationalists make in opposition to them have, too. Migrants are said to have bid up the price of housing. They are said to cost the government money, rather than improve the public finances. And they are said to have eroded the culture on which Western countries have built their long-term economic success. Call these arguments the new economics of nativism.
They are heard across the rich world. “You see a very consistent relationship between a massive increase in immigration and a massive increase in housing prices,” said J.D. Vance, America’s vice-president, on March 10th. German migration policy has led to “a drain on state finances…damage to the social-welfare system and housing market”, according to the Alternative for Germany’s recent manifesto. Open borders make it “impossible to have a sustainable society, especially if you have a welfare society”, Mette Frederiksen, the centre-left but anti-migration prime minister of Denmark, has said. Stephen Miller, now the White House deputy chief of staff, has put things starkly: “If you import the third world, you become the third world.”
Historically, anti-migrant parties focused on the job market. Millions of foreigners entering the Western workforce every year reduced opportunities and wages for natives, or so the argument went, particularly low-earners who were forced to compete with overqualified, highly motivated and exploitable newcomers. Pro-migration economists responded by pointing out a “lump of labour fallacy”. It was not the case that there was a fixed number of jobs to be divided among workers: extra demand migrants brought with them, and resulting increased specialisation in the labour market, had offsetting effects that could raise wages. A range of empirical research supported the idea that any reduction in natives’ wages from migration was either small or non-existent. The people who lost most from migration were previous generations of migrants, since they were most similar to the new arrivals.
Fallacious as the old nativist thesis might have been, it had power. But in the red-hot labour markets of the late 2010s and early 2020s, the context changed: unemployment was simply too low to claim that migrants were causing joblessness. And hence the new nativism emerged.
Is there anything to it? The argument about culture has an emotive appeal to nationalists, and sometimes lapses into racism. Nativists worry that when migrants move from their countries of origin to rich countries they gradually erode the liberal, open societies that have created long-run prosperity in the West. When made respectably, this argument asks similar questions to those posed at the frontier of academic economic history, not least: “Why are some countries rich and others poor?”
Indeed, the nativist argument seeks to explain the same set of facts that troubled Daron Acemoglu, Simon Johnson and James Robinson, the three most recent winners of the economics Nobel prize. The trio’s research observes that at the start of the 16th century a “reversal of fortune” took place: the poorest economies—including what is now America—became rich, and vice versa. The researchers noted that European colonists spread new institutions across the world. In some places, such as North America, they imposed relatively inclusive liberal ones. In others, such as most of Africa and large parts of South America, colonial governments sought to serve the metropole rather than locals.
Colonial hangover
Who got which institutions, they argued, was determined by migration. Where Europeans were more likely to die of tropical diseases, they ruled at a distance and extractively. Where they found it easy to settle, they formed inclusive institutions. Others have pointed to the people involved. Edward Glaeser of Harvard University and co-authors argue that it is human capital which ultimately matters for economic growth, and European colonists brought education, knowledge and trade links with them, as well as institutions.
Today’s nativists worry the reverse is now happening. More sophisticated types draw on the arguments of Garett Jones at George Mason University, who in 2022 set out the evidence in a book entitled “The Culture Transplant”. Only a third of the gap between two countries’ income levels can be predicted by the state of technology, such as access to the printing press, in 1500—a correlation that is low owing to the reversal of fortune. But this share doubles when adjusted for subsequent migration. In other words, it appears that the presence of people whose lineage traces to advanced places (typically Europe, East Asia and the Arab world) can explain differences in living standards today.
After presenting evidence that the social attitudes of migrants—in particular, those relating to the amount of trust extended to non-family members—persist fairly strongly through generations, Mr Jones concludes that countries which take too many migrants from the wrong places will eventually suffer economic losses. As a consequence, the entire world, argues Mr Jones, has a stake in protecting the cultures of the seven countries responsible for the most innovation: America, Britain, China, France, Germany, Japan and South Korea.
As a basis for the new nativist argument, this theory has serious problems. It performs badly in the world’s most populous countries: America is much richer, and China and India much poorer, than it would predict. Mr Jones’s critics have claimed that his book is really an argument for opening America’s borders, at least to some migrants, given the number of countries with apparently superior growth cultures. This includes places that the hard-right might like, such as Russia, but also many they would not, such as Algeria and Tunisia. Indeed, much of the argument about the importance of migration for long-term economic outcomes is based on the fact that the West, as well as places like Hong Kong and Singapore, owes part of its success to waves of migrants.
Argentina is the only example identified by Mr Jones of a country that has become poorer because of migration. He blames its 20th-century decline on Italian and Spanish migrants, who supposedly imported trade unionism and other socialist ideas. Yet both countries have a more growth-focused culture than Argentina, according to his measures. Such migrants therefore ought to have improved the South American country’s performance.
Although culture might be a poor measure of a migrant’s potential economic impact, education and earning power do have use, not least when predicting contributions to state coffers. Nativists can cite plenty of evidence to support warnings that low-earning migrants are a drain on welfare states. For instance, in 2016 America’s National Academies of Sciences, Engineering and Medicine convened a large panel of economists to summarise the best evidence on immigration. They reported a strong correlation between a migrant’s skill level and their fiscal impact.
The numbers depend on some assumptions. Researchers must decide how much an immigrant raises spending on, say, defence. They must forecast how an immigrant’s income will change over time. And they must presume that today’s tax-and-spend policies do not alter radically over the course of an immigrant’s life. Under probably the best assumptions available, the 75-year fiscal impact of an immigrant with less than a high-school education, and their descendants, is a drain on taxpayers of 400,000. One reason for the gap is America’s pension system, which provides generously for low-earners when they retire.
Chart: The Economist
Similar evidence has piled up in Europe, where welfare states are more generous. Last year Britain’s Office for Budget Responsibility (OBR), a fiscal watchdog, found that a representative high-wage migrant worker would be a net fiscal contributor over their lifetime even if they claimed a pension and used the health service until the age of 100. A low-wage migrant would, by the same age, have cost over £1.5m, at assumed 2028-29 prices, having been a fiscal drain since their arrival.
A recent study of Danish data by Jan van de Beek of the Amsterdam School of Economics and co-authors finds that migration is only fiscally beneficial, on average, if immigrants have at least a bachelor’s degree. Migrants from parts of the world with lower human capital are more likely to be a fiscal drag. The Danish finance ministry calculated in 2019 that migrants from Western countries made an average fiscal contribution of 52,000 krone (then $7,800) per person. Those from the Middle East and North Africa were on average costing the state 74,000 krone more in spending than they provided in taxes.
Such evidence goes some way to proving Milton Friedman’s dictum that it is impossible to pair open borders with a welfare state. Yet the studies are incomplete. Take the OBR’s analysis. Its representative low-skilled migrant is assumed to stay at the same low point in the earnings distribution from the year they arrive; in reality, migrants tend to close the pay gap with natives over time. And the estimates exclude the beneficial effects of having more workers for the public sector. Without migration, the state would have to raise pay to attract, say, care workers—and probably for all workers, not just new ones.
Travel light
There are also deeper issues. Adding in the extra taxes paid by the employers of migrant labour vastly improves the picture, according to Michael Clemens, also of George Mason University. In America this effect flips the fiscal impact of the lowest-skilled migrant to strongly positive, at $326,000 including descendants. And beyond simple scale, importing workers who are different from natives adds to the diversity of skills in the labour force, allowing all workers to specialise more and hence to be more productive.
This means that immigration raises the average income of natives, and therefore the taxes they pay. The indirect fiscal benefit amounts to roughly $750 per year for a low-skilled American worker, estimate Mark Colas of the University of Oregon and Dominik Sachs of the University of St Gallen, which may be enough to tip the fiscal impact of an immigrant with only a high-school education from negative to positive, even ignoring Mr Clemens’s point. In other words, more migrants are likely to be net contributors than an investigation of tax-and-spending data would indicate. Such investigations “offer precision at the cost of bias”, says Mr Clemens.
New nativists have the strongest argument when they turn to housing. The post-pandemic wave of migration has coincided with rising house prices. In real terms, they have grown by 16% across the OECD, a club of mostly rich countries, since before covid-19 struck, despite an increase in interest rates. Just as with earlier arguments about migrants’ impact on the labour market, the case depends on a straightforward model of supply and demand: growing populations require more houses. Unlike labour markets, however, rich-world housing markets are often rigid and bound by restrictive planning laws that prevent supply from responding to demand. The lump of labour may be a fallacy but, without more housebuilding, there is effectively one lump of land that must be divided between a larger population.
Research supports this intuition. A meta-analysis by William Cochrane and Jacques Poot, both of the University of Waikato, finds that a 1% increase in the migrant population of a city lead to a 0.5-1% rise in rents. Another study, by Umut Unal of the Czech Research Institute for Labour and Social Affairs and co-authors, estimates that a 1% rise in migration to a German district leads to a 3% rise in house prices. James Cabral and Walter Steingress, both of the Bank of Canada, calculate that a 1% increase in an American county’s population raises median rents by 2.2%. As migration only has a small positive impact on wages, the rise in costs makes housing less affordable for natives.
Illustration: Lucas Burtin
Housing demand depends not only on the number of people in an area but how densely they live. Often new migrants are willing to accept worse conditions than natives. For instance, official statistics suggest that the rate of overcrowding among non-British-born residents is almost double that of those born in the country. In Newham, a down-at-heel London borough that attracts lots of migrants, some 40% of those with an Asian background live in overcrowded accommodation, compared with just 16% of the white population. The division of old Victorian terraced houses into multiple flats raises landlords’ rental income and lowers the amount of space used to accommodate new arrivals.
Although there are nuances to research on this issue, only in exceptional cases can migration actually lower housing prices. Where housing supply is responsive to prices, the impact of new arrivals is more muted. The effect on house prices also depends on the education level of immigrants. The Bank of Canada study finds that, where supply is least elastic and migrants most educated, a 1% increase in migrant populations produces a 6-8% rise in house prices. If housebuilding is responsive to demand and migrants are less educated, prices may fall by as much as 2%.
What, though, is the right response to these findings? Many nativists would prefer to remedy an ageing population by incentivising women to have more babies, rather than admitting more migrants. Yet this is likely to raise demand for housing even more. Marc Francke of the University of Amsterdam and Matthijs Korevaar of the Erasmus School of Economics find that a percentage-point rise in the Amsterdam birth rate typically lifts house prices in the city by 3-5% over the following 25 years. Indeed, the rise in demand for American houses after the pandemic owes much more to millennials’ behaviour (as low interest rates at last enabled them to get a foot on the housing ladder) than migration, suggests Riordan Frost of the Harvard Joint Centre for Housing Studies.
A house divided
And the overall impact of migrants on property prices is still small. The share of the OECD population that is foreign-born rose from 9% in 2013 to 11% in 2023. A rough calculation suggests that such a rise will have lifted prices by around 4%. In reality, real house prices have risen by 39%, indicating that other factors play a much bigger role. Morteza Moallemi of RMIT University and Daniel Melser of Monash University find that if there had been no migration to Australia between 2011 and 2016, house prices would have been just 1% lower each year. The biggest public-policy problem facing much of the West is a lack of housebuilding, not a rise in migration.
Nativists have overreached in their fervour to blame outsiders for such a broad range of economic ills. But their new arguments are undoubtedly stronger than their former ones, meaning governments must respond to their most persuasive critiques on housing and the public finances. Ultimately, open societies and free markets are a far better guarantee of long-term prosperity, and Western Europe’s welfare state, than a retreat to economic nationalism. ■
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This article appeared in the Finance & economics section of the print edition under the headline “The anti-immigration handbook”
Finance & economics
March 15th 2025
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