Social Capital, Property Values, and Salam
By Bryan Caplan
It is possible that cash transfers are the most appropriate vehicle for
addressing problems that stem from cultural and economic isolation and
family breakdown, but my sense is that integration into the broader
society will prove the more fruitful strategy. This might be somewhat
easier to achieve if the flow of new less-skilled migrants from the same
source communities is reduced.
My article argued that social capital is overrated for the following reason:
[I]f you equate “culture” with “trust” or “social capital,” real estate markets are a helpful measuring stick. If social capital is important and immigration has large negative effects on an area’s social capital, then immigration would cause housing prices and rents to fall. Immigrants would directly increase housing demand by renting and buying homes, but indirectly decrease housing demand by making their destinations unpleasant places to live. In fact, as discussed earlier, immigration has a strong positive effect on cities’ real estate prices (Gonzalez and Ortega 2009; Saiz 2003, 2007). If immigration hurts trust or social capital, the effect must be small.
Salam’s not convinced:
I was surprised by Caplan’s argument that real estate values are a
helpful measure of social capital in a given region, as there are
presumably many confounding variables. Would real estate values in
high-productivity regions be markedly lower if, say, the share of
skilled migrants was much bigger while the share of less-skilled
migrants was much smaller?
Let me spell out my argument in more depth. My key premise isn’t that “real estate values are a helpful measure of social capital,” but that real estate values are a helpful measure of quality of life. The better an area’s package of beauty, convenience, culture, opportunity, safety, schools, etc., the pricier its real estate becomes. So if…
(a) immigration has a big negative effect on social capital, and
(b) social capital matters a lot for quality of life
…then immigration should reduce real estate values. To see the argument more clearly, imagine if immigrants all carried bubonic plague. As soon as plague-infested immigrants moved to an area, natives would flee in terror, and local real estate prices would plummet. Immigrants would directly increase the demand for housing by renting and buying, but the indirect effects of their deadly presence would heavily outweigh that direct effect.
The empirical evidence on immigration shows nothing remotely like this. The admittedly small number of papers on the topic all find that immigration sharply increases real estate prices – 1% more people implies roughly 1% higher prices. This doesn’t rule out some negative effect of immigration; maybe real estate prices would have risen by 1.5% if the immigrants were “our kind of people.” But as long as real estate prices go up in response to immigration, the idea that immigrants are seriously tearing our social fabric is far-fetched.
Salam’s probably right to think that skilled immigration would do more for real estate prices than unskilled immigration. Skilled immigrants have higher willingness to pay, and on average make better neighbors. But that hardly shows that low-skilled immigration is bad. Yes, if there’s a fixed quota of immigrants, more unskilled immigrants mean fewer skilled immigrants. The whole point of my piece, though, is that immigration quotas should be abolished. We don’t have to weigh skilled immigrants against unskilled immigrants. As long as they get jobs with willing employers and rent apartments from willing landlords, the more the merrier.