The article examines the impact of IDP inflows on rental prices in Colombian cities. Even before the peak of the internal displacement crisis in the early 2000s, Colombia already had large housing deficits in urban areas.
IDPs may affect the housing market in several ways: (a) IDPs tend to be poor and increase demand and rental prices for low-income housing; (b) IDPs provide cheap labor, which is partially absorbed by the construction sector, putting downward pressure on rental prices; (c) competition in the labor market may depress wages for both IDP and non-IDP workers, generating income effects in the housing market; (d) IDP inflows may be associated with deteriorating living conditions, due to congestion or perceived/real increases in crime, putting downward pressure on rental prices; (e) heterogenous effects are likely to emerge due to segmentation of the housing market along income levels; and (f) local government may pursue policies to deter low-income households moving into their jurisdictions, exacerbating demand in places where IDPs are concentrated.
The analysis is based on administrative panel data on quarterly IDP flows across Colombian municipalities together with rental prices by income level for the 13 principal IDP-hosting cities in the period 1999–2014.
Main findings:
- IDP inflows led to increased rental prices for low-income housing and decreased rental prices for high-income housing. In the period 2004–2014, low-income rental prices increased by 14 percent, and high-income rental prices decreased by 37 percent. There was no overall effect of IDP flows on average rental prices.
- Excess demand for low-income housing puts upward pressure on rental prices, but this is not followed by an increase in the supply of low-income housing. IDP inflows create excess demand for low-income houses, pushing up rental prices for these properties. And, while the total number of construction licenses does not vary with IDP inflows, construction licenses for low-income housing units are crowded-out by construction licenses for high-income housing units.
- The arrival of IDPs reduced real wages in the construction sector, suggesting IDPs fuel the construction sector in more affluent areas, consequently lowering high-income rental prices.
- Inflows of IDPs increase homicide rates in host cities, putting downward pressure on housing prices. A 10 percent increase in IDP inflows increased the homicide rate by 6.4 percent with respect to its mean. Higher homicide rates depress rental prices, however in poorer areas, the spike in housing demand outweighed the impact of crime.
The authors conclude that IDP inflows increase low-income rental prices but decrease high-income rental prices, which they attribute to two mechanisms: (1) IDPs fueling the construction sector in rich areas (lowering rental prices) as well as exerting a sizeable demand shock in low-income areas; and (2) the excess demand for housing in low-income areas is not followed by an increased supply of rental units.