Immigration drives up local rents and house prices by a significantly bigger margin than previously thought, according to a Danish study that has been plunged into President Trump’s battle for control over American economic policy.
The analysis found that inward migration had accounted for more than 60 per cent of the rise in Denmark’s housing costs from 1999 to 2016 and argued that the effect was likely to be similar in other rich western countries, including the UK and Germany.
Previous research on the issue has yielded contradictory results. One recent study in Spain estimated that each extra percentage point of immigration relative to a district’s existing population raised local house prices by 3.3 per cent.
However, a 2015 paper looking at Britain found the opposite trend: local house prices fell 1.7 per cent for every percentage point increase in a neighbourhood’s immigrant population. The authors suggested that was because native Britons tended to move away from an area as migrants moved in.
A third analysis of cities in the United States, which took account of variations in the local housing market such as rent levels and the rate of housebuilding, identified only a very minor increase in prices linked to immigration.
Anna Piil Damm, professor of economics at Aarhus University in Denmark, said that all these efforts had struggled with the same fundamental problem: migrants tend to choose neighbourhoods based on affordability, proximity to job opportunities and other factors that make them generally appealing to live in.
That makes it difficult to disentangle the effects of immigration from rent or house price rises that would have happened anyway as all populations move to the district for much the same reasons.
To get around this confusion, Damm and her team used the influx of refugees into Denmark as a case study, since migrants who are granted asylum are distributed across the country according to a strict formula based on the size of the local population. In other words, they cannot pick where to live, which means that if immigration to a district increases and then its rents and house prices go up, there is likely to be a causal link between the two.
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The authors also used a highly detailed dataset with the home country of every single resident in Denmark, which let them extrapolate their estimates to immigration in general.
The results, published in a discussion paper for the Berlin research institute of the Rockwool Foundation, a charity founded by the Kähler family of industrialists, point to a much stronger effect than previous studies have identified.
Over a typical five-year period, each additional percentage point rise in immigration to a district was followed by a 6 per cent increase in private rents and an 11 per cent increase in house prices.
Over the 17-year period of the study average house prices across Denmark rose 51 per cent. Damm and her colleagues estimated that immigration drove them up by 32 per cent — almost two thirds of the increase.
The research was seized upon by Stephen Miran, who served as Trump’s chief economic adviser until he took a post on the board of governors of the Federal Reserve, the US central bank, last month. Miran said he hoped that the “interesting” study would be echoed by similar findings in the US. He also suggested that the steep fall in net immigration into the country since the start of this year would curb house price growth and inflation more generally.
Stephen Miran and President Trump are pushing for lower interest rates
ALEXI J ROSENFELD/GETTY IMAGES
Trump has himself speculated that immigration had inflated the cost of American housing.
Solid scholarly evidence for this idea could provide Trump and Miran with ammunition in their aggressive push for the central bank to cut interest rates, which were reduced by 0.25 percentage points in September.
“This matters to me because I view [immigration] as having driven a meaningful portion of [the] inflation that we experienced in recent years, and as having now gone into reverse,” Miran wrote on X. “It matters for monetary policy.”
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Damm said it was “highly unexpected” to find her research suddenly being enlisted in Trump’s wrestling match with the Federal Reserve. She said that while Denmark had different patterns of immigration and a differently structured housing market to those in the US, it was plausible that a similar effect could be at play in America.
“I would also expect symmetric results in the US,” Damm said. “So if what Stephen Miran has in mind is that the deportations of immigrants are a way to lower housing costs in the US, then I would expect that large-scale deportations of immigrants would actually have that effect.”
Juan Carlos Parra-Alvarez, an Aarhus University macroeconomist who also contributed to the Danish paper, said it was possible that a decline in immigration would reduce demand for housing and so help to bring down inflation more broadly, but it was hard to tell whether this would happen in the US.
There are other complications. Several studies have found that high levels of immigration into a neighbourhood tend to lead to lower rents and house prices locally, because the previous locals move away, but at the city level they lead to higher prices, because the overall demand for housing increases.
Damm said it was also likely that residents would respond differently to different kinds of migrants. “You could argue that the extent to which natives will move out when immigrants move in depends on the cultural and linguistic distance between [the two groups],” she said.