Immigration and the Role of Slums in Housing Affordability
Presented by:
Marco Gonzalez-Navarro
Agricultural and Resource Economics
University of California, Berkeley
Friday, May 1, 2026
12:00 pm-1:15 pm
Taylor-Hibbard Seminar Room (Rm103)
We study how international immigration interacts with housing supply constraints and the formation of slums in emerging economies. Using comprehensive administrative data covering all formal and informal housing in Chile between 2011 and 2021, and exploiting a shift-share IV strategy, we show that immigration led to large increases in the number of slums, their spatial extent, and the population residing in them. In contrast, evidence from detailed construction-permit data reveals that while immigration also expanded formal housing supply, this occurred exclusively through high-quality units, with no corresponding increase in affordable housing. Exploiting exogenous variation in construction costs induced by terrain ruggedness, we show that slum expansion is significantly larger in municipalities where affordable formal housing supply is most constrained, pointing to substitutability between the two housing sectors. To quantify the general-equilibrium mechanisms underlying these patterns, we calibrate a static spatial model with heterogeneous households and dual formal–informal housing sectors. Using immigration-induced demand shocks, we causally identify housing supply elasticities in both sectors by combining long-difference changes in rents and housing quantities. Counterfactual simulations show that informal housing acts as an endogenous buffer that absorbs population shocks and limits rent increases. Restricting or eliminating slums without increasing formal supply elasticities can generate sizable welfare losses. Overall, our findings indicate that slums emerge as a second-best but quantitatively important adjustment margin in cities facing large immigration shocks and rigid formal housing markets.