Monday, December 4, 2006

The impact of immigrants

In his blog today Matthew Kahn (http://greeneconomics.blogspot.com/) discusses the relationship between immigrants and urban crime. This question is certainly not unrelated to the situation in Haifa, my home town.

Within less than a decade, Israel's population increased by almost 1,000,000 immigrants. The wave from the former Soviet Union started in 1990 immediately after the fall of the Iron Wall.

However, the increase in crime, especially petty theft and drunk driving, is dwarfed by the positive impact of this immigrations wave. There can be no doubt that the increase in the country's human capital has contributed tremendously to the expansion of Israel's hi-tech industry. At the same time, Israel has become a good example of growth that is demand-driven. The new population, given transfer payments and housing subsidies, created growth that is unprecedented.

An interesting side phenomenon concerns the behavior of the housing market. In the years 1990-1992 housing prices fluctuated widely as a result of the demand shock. It is interesting that it took the market only 2 -3 years to settle to a new equilibrium with only slightly higher price levels.

1 comment:

Valuethinker said...

Presumably the impact on Israeli housing prices by a sudden influx of Russians was reduced due to a government policy of opening up new land for development?

In the end, if land and zoning are adjusted, then a one-off demand impulse shouldn't change the equilibrium housing price.

Taking an outsider's perspective, Israel is on the verge of the housing price boom of all time. Israel is the one western nation with a growing economy and positive demographics, that has not had a major housing price boom.

The quantity of money that is waiting, offshore, to be invested, is (at least anecdotally) huge-- for religious reasons many members of the Diaspora would prefer to invest in land in Israel and perhaps have a second home there.

The 'tipping point' will be the prospect of peace with the Palestinians. I wonder if any of Israel's political parties have figured that they could preside over the greatest housing price boom in Israeli history, if they can but find a way to a negotiated solution?