Immigration and Rental Prices of Residential Housing: Evidence from the Fall of the Berlin Wall

The fall of the Berlin Wall on 9^th November 1989 sparked a mass exodus of East Germans to West Germany. This paper exploits the natural experiment provided by the unexpected disintegration of socialist East Germany to study the impact that immigration has on residential housing rents in recipient regions. Using a spatial correlation approach, annual district-level migration data for 1991 and 1992 and unique rental price indicators from Germany's major regional property market information system, we find strong evidence for a positive and sizeable effect of immigration on rental prices of residential housing. A one percent population increase due to immigration is associated with an approximate increase in minimum and average category rents by 4.8 and 3.3%, respectively. Additional explorations that employ IV approaches, based on historical settlement patterns of migrants from the former Soviet Occupation Zone as well as various exogenous origin-region push factors related to the deteriorating economic conditions in East Germany following reunification, yield estimates of even larger magnitude. These results suggest that immigration has important economic effects outside the labour market, traditionally the prime domain of economic enquiries into the consequences of immigration. Our findings cast doubt on the appropriateness of this bias in focus.