First-come first-served: identifying the demand effect of immigration inflows on house prices

An inflow of immigrants into a region affects house prices in three ways. In the short run, housing demand increases due to the increase in foreign-born population. In the long run, immigrants affect native location decisions and housing supply conditions. Previous research on the effect of immigration on local house prices has argued that the impact of immigrant demand cannot be separated from the demand changes due to native relocation or that the impact of immigrants on native mobility has no consequences on the estimates. In this paper I propose a methodology to pin down the immigrant demand effect. I apply it to Spanish data during the period 2002-2010 and I show that overlooking the impact of immigration on native mobility induces a sizeable bias in the short-run estimates. My results are robust to controlling for changes in housing supply.