The Externalities of Airports and Immigrants

Are the externalities of airports positive or negative? If you base your answer on NIMBY complaining, the answer is obviously negative. Above all, there’s the noise. The deafening sounds of take-off and landing bedevil everyone who spends time near the airport. On top of that, there’s daily traffic. Not every airport is LAX (in fact, only LAX is LAX), but congestion is a common bonus burden on locals.

Renters, to be fair, don’t really suffer on balance. They get compensated for the noise and traffic with lower rent. Local workers, too, receive extra pay to compensate them for their suffering. The main victims of the externalities, then, are property owners. Living right next to an airport typically depresses their property values by 5-15%, a major hit to their net worth.

On reflection, however, these NIMBY complaints miss almost all of the externalities of airports! Imagine what would happen to property values in a major city if its sole airport closed. Imagine what would happen to property values in a mega-city if all of its airports closed. A rough estimate is that property values for the entire city would fall by about 4%, with further harm on overall economic activity. Even though gainers rarely show up at land-use meetings, the externalities of airports for most people are positive. And since there are far more who gain than lose, the net externalities of airports are positive as well.

Far from being a thoughtful Pigovian response to negative externalities, then, regulation that limits airport construction and expansion is an impulsive demagogic response to positive externalities. On balance, laissez-faire would be far better than the status quo.

What about the externalities of immigration? Are they positive or negative? For high-skilled immigrants, it’s a no-brainer. They raise property values in their local neighborhoods, and they raise property values overall. But for low-skilled immigrants — or low-skilled domestic migrants for that matter — the question is more complicated. If a lot of poor people move into your neighborhood, you can definitely imagine that property values will go down. Garett Jones raised this issue in our UATX debate last May, favorably referencing Sá (2015).

Like airports, however, there is a big difference between local externalities, which might well be negative, and net externalities, which are still likely to be positive. Indeed, typical anti-immigration thinkers point to all of the studies finding that immigration raises housing prices — which they then bizarrely interpret as an argument against immigration rather than for housing deregulation. As Sá explains:

Studies of the impact of immigration on house prices and rents find different effects depending on the level of geographic disaggregation used.

Studies looking at broad regions tend to find a positive effect. Saiz (2007) looks at house prices and rents across metropolitan areas in the US. He finds that an immigration inflow equal to 1% of the local population is associated with an increase in average rents of about 1% and an increase in average prices of 2.9 to 3.4%. For Switzerland, Degen and Fischer (2009) find that an immigration inflow equal to 1% of a district’s population increases prices of single family homes by about 2.7%. For Spain, Gonzalez and Ortega (2013) use data at the province level and find that an increase in the foreign‐born population equal to 1% of the total population leads to an increase in house prices of 3.2%. In contrast to these studies, Akbari and Aydede (2012) and Stillman and Maré (2008) find that immigration has only small effects on house prices in Canada and New Zealand. These two studies use census data and thus examine long‐run effects. Because housing supply is likely to be more elastic in the long run, it is not surprising that immigration would have a smaller impact on house prices and rents between census dates than between consecutive years.

At the local level – looking at neighbourhoods within metropolitan areas in the US – Saiz and Wachter (2011), find a negative association between immigration and changes in house prices and rents. The authors suggest three possible explanations for this result. First, natives may have a preference for living with individuals of the same ethnic group and of higher socio‐economic status. Second, immigration may generate more crime or affect the quality of locally provided public goods (e.g. schools) which may experience overcrowding. Finally, immigration may affect the quality of the housing stock. The authors find that reported crime decreases in the housing units where immigrants move in and that there is no significant difference in quality between native and immigrant owner‐occupied properties. Moreover, they find that immigrant arrivals are associated with decreasing native populations, especially of non‐Hispanic whites. Also, the negative association between immigration and changes in housing values is stronger in neighbourhoods where immigrants are less educated and tend to be ethnic minorities. These results favour the first explanation: a preference by natives for living with individuals of the same ethnic group and of higher socio‐economic status.

The analogy between airports and immigration is admittedly imperfect. Living across the street from an airport is always bad. Living across the street from immigrants, in contrast, is often great. Half the people in my neighborhood are immigrants, and so is my wife, and only a hypersensitive bigot would find fault with them.

Indeed, even if the immigrants across the street are crime-prone, they’re a blessing for locals as long as they’re less crime prone than the people they displace.

But yes, some subsets of immigrants plausibly impose negative externalities on their local neighborhoods. The demagogic response is to reduce immigration, or at least low-skilled immigration. The thoughtful response, however, is laissez-faire. Wise policy is based on overall effects on everyone, not just the highly visible effects on highly vocal people. This is true for airports, and it’s true for immigrants.

P.S. Couldn’t the effects of low-skilled immigration be horrific enough to make the net externalities negative? Sure. The same goes for airports. If planes literally deafen large numbers of people, it would be better to close the airport. But basing policy on awful anecdotes is folly, and basing policy on morbid imagination is even greater folly.

P.P.S. ChatGPT reconsiders Sá in light of later evidence.