Asians are the fastest-growing racial or ethnic group among eligible U.S. voters. The inflow of Asian immigrants into U.S. cities has also been associated with local housing price appreciation. On the one hand, this `Asian shock' could have a direct capital inflow effect on local housing markets. On the other hand, those Asian immigrants might indirectly affect the housing market through the neighborhood quality changes, such as local academic outcomes. This paper aims to disentangle the Asian immigrants' effects on the housing market into the direct capital inflow channels and indirect channels through educational quality improvement. We employ an instrumental variables approach that accounts for endogeneity in Asian immigrants' location choice by exploiting the spatial variation in the 1980s Asian share of population and temporal variation in the number of visas issued for Asian nationalities. To causally identify the capitalization rate of educational quality in the housing market, we use state-level teacher reform as an instrumental variable for county-level academic performance. Using 2009-2019 annual county-level data, We find that, first, the housing market appreciation effect of Asian immigrants only exists in the top 5% Asian-populated counties. Second, the rise in the share of Asians in the neighborhood leads to higher test scores for other ethnic students. Third, our back-of-envelop calculation shows that at least 35% of housing price appreciation results are driven by the improvement in educational quality in the neighborhoods with a higher Asian share. This paper uncovers a channel through which this new type of immigrant affects the U.S housing market.

Speaker: Eunjee Kwon