Eye On Housing
New NAHB research estimates the immigrant labor flow into the construction industry over the housing boom and bust years. The results show that more than 135,000 immigrant workers entered the US construction industry at the height of the housing boom in 2005. By 2011, the construction immigrant flow plummeted to a low of 23,000, highlighting the role of new immigrant workers as an extremely variable labor pool that moves in sync with the single-family construction business cycle.
The NAHB analysis is based on ten years of the American Community Survey (ACS) data that allow estimating the number of construction foreign born workers by the year of their arrival into the United States. The ACS, however, does not provide information on the legal visa status of immigrants and only differentiates between naturalized citizens and not citizens of the United States (the NAHB estimates include both types).
The uncovered pattern with the immigrant labor flow peaking in 2005, plummeting to a low in 2010-2011, and recovering to a modest degree by 2012 is quite familiar and closely follows the home building business cycle, as highlighted in Figure 1.
To study these links more formally, the NAHB research article looks at the correlations between the annual flow of immigrants into the construction labor force and a number of economic time series. It turns out the annual flow of immigrant workers is most highly correlated with measures of new home construction, especially new single-family home construction. And the response of immigration is quite rapid, occurring in the same year as a change in single-family construction activity.
Given high correlations, the research article also explores long-run ratios relating a number of new incoming construction immigrants to a specific measure of construction activity. As an example, single-family starts are used in this analysis. Although the flow of construction immigrants is highly correlated with single-family starts, the ratio is not perfectly stable over the 2003-2012 time horizon captured by the ACS (Figure 4). As the figure shows, there were 68 newly arrived construction immigrants per 1,000 single-family starts in 2003, but the ratio fluctuated from a high of 82 per thousand in 2004 to a low of 53 in 2011.
The ratio has been well below 68 per 1,000 single-family starts for the past three years, pulling the long-run average down. But the three most recent years could reflect atypical conditions—either in the market for housing or the environment for immigration—so NAHB prefers the longer term average of 68, which incorporates the most recent experience but averages in earlier data as well.
For forecasting purposes, relying on the long run average is bound to produce an inferior forecast, underestimating the immigrant flow during the housing expansion years and overestimating the number of immigrants arriving to work in construction during the past three years. The NAHB article employs regression analysis as a more reliable and accurate forecasting tool. The regression analysis shows that over the ten years covered by the ACS data, the construction industry was absorbing about 81 new immigrants for each additional 1,000 single-family starts during the housing expansion. In the same way, during the housing contraction, the immigrant flow was reduced by 81 immigrants for every 1,000 lost single-family starts.
In summary, the analysis of ten years of the ACS data highlights the role of new immigrants as an extremely flexible pool of construction labor that adjusts quickly to the changing economic environment, especially the business cycle of single-family home building.
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