New study: Illegal immigration was a main driver of housing inflation during Biden-era flood 

The media is reporting that builders are experiencing a labor shortage because of illegal immigration enforcement, claiming the homebuilding market is at a standstill.

But a new study shows that illegal immigration previously drove housing prices higher without creating additional housing supply or higher wages.

At the same time, since the start of the Trump administration’s immigration crackdown, prices of new homes sold have declined substantially, while existing home prices have remained virtually flat, marking one of the bright spots in the inflation story since the end of the pandemic.

The Wall Street Journal (WSJ) reported that two-thirds of builders are complaining about labor shortages, compared with 23% in March and 13% last year.

At the same time, the National Association of Home Builders said the labor shortage has pushed wages up 4.2% year over year for legal workers remaining in the trade.

The result appears to be a significant wage increase for workers in the homebuilding sector, especially at the entry level.

The WSJ said that while in 2025 “immigration arrests had only limited impact on the home-building industry,” the Trump administration accelerated enforcement in 2026.

“We’re almost dead in the water because our workforce is gone,” Scott Brannock, president of Jacksonville-based Tidewater Homes and the Northeast Florida Builders Association, told the WSJ.

But just as higher wages in homebuilding are benefiting legal workers and native-born Americans, deportations may offer a bright side by helping reduce new-home prices.

The Census Bureau reported that in August 2026, the average sales price of new homes sold was 8.8% lower than a year earlier, while the median existing-home sales price has remained near its May 2024 level, with only modest changes for seasonal fluctuations.

At the same time, month-over-month sales in August grew 6.4%.

After adjusting for inflation, home prices in real terms are even lower than the nominal figures suggest.

That’s important because one of the biggest contributors to inflation from 2021 to 2024 was housing costs, fueled in no small part by an unprecedented wave of illegal immigration encouraged by the Biden administration, according to a new Federal Reserve study.

“Multiplying these marginal effect estimates by the size of the local UIWF [unauthorized immigrant workforce] shock,” the authors said, “implies that UIWF increased house prices and rents for the average metropolitan area by 6.7% and 4.2%, respectively, accounting for roughly 30% of its total house price growth and 20% of its rent growth over the boom period.”

Immigration lowered wages

The effect on illegal immigrants and disadvantaged workers is compounded when taking into account that they earned lower wages.

That’s because the report also found that the wave of illegal immigration had “positive but insignificant effects on total personal income, [as] it reduced labor income per capita significantly.”

It reduced labor income per capita by shifting the composition of the workforce toward lower-wage workers.

In other words, by adding illegal immigrants, the U.S. added more workers at the lower end of the wage scale rather than lifting wages.

At the same time, the Federal Reserve study found that the large number of illegal immigrants created a demand shock in the housing market without a corresponding increase in supply, despite the apparent shortage of workers about which homebuilders are now complaining.

“The same immigrant inflows that expand local employment also raise local housing demand,” the report said. “When housing supply is inelastic, this shock raises rents and house prices.”

The shock was especially pronounced in dense urban areas that are more sensitive to inflationary pressures: “rents and house prices rose, while building permits and construction employment did not respond significantly,” the study added.

The study characterized the research as the first “empirical assessment” of the systematic effects of the Biden-era illegal immigration influx on labor and housing markets.

However much homebuilders may be complaining about the short-term effects of losing access to cheap labor through illegal immigration, the study showed that when builders had access to that labor, it did not help lift wages; it only helped lift housing prices.

The study concluded that the effects on U.S. wages ranged from “zero to modestly negative” because of the illegal immigration wave.

But the biggest effects were reserved for America’s largest expenditure: housing.

“Examining local housing markets, we find that [illegal immigration] increased house prices and rents, without significantly expanding new housing supply. Thus, the immigration boom likely acted not only as a local labor supply shock but also as a housing demand shock, boosting prices in the face of relatively inelastic short-run housing supply.”