We examine the impact of immigration on the residential market within urban areas. We develop a spatial equilibrium model that shows how the effect of an immigrant inflow in a district affects local housing prices through changes in how natives perceive the quality of their local amenities and how this influences their mobility. Predictions of the model are tested using a novel dataset on housing prices and population variables at the district level for a sample of 20 large Italian cities. To address endogeneity problems we adopt an instrumental variable strategy which uses historical enclaves of immigrants across districts to predict current settlements. We find that immigration raises average housing prices at the city level; however it reduces price growth in a district affected by an inflow vis-à-vis the rest of the city. This pattern is driven by the natives' flight from immigrant-dense districts towards other areas of the city. These findings are consistent with native preferences to live in predominantly native areas.
Published in 2014 in: Regional Science and Urban Economics, v. 45, pp. 45-56
