Don't stand so close to me: The urban impact of immigration

We examine the impact of immigration on segregation patterns and housing prices in urban areas. We develop a spatial equilibrium model that shows how the effect of an immigrant inflow in a district affects local housing prices through changes in how natives perceive the quality of their local amenities and how this influences their mobility. Predictions of the model are tested by using a novel dataset on housing prices and population variables at the district level for a sample of 20 large Italian cities. To address endogeneity problems, we adopt an instrumental variable strategy which uses historical enclaves of immigrants across districts to predict current settlements. We find that immigration raises average house prices at the city level, while it reduces price growth in the district affected by the inflow vis-à-vis the rest of the city. We provide evidence that this pattern is driven by native-flight from immigrant-dense districts towards other areas of the same city. These findings are consistent with a negative effect of immigrants on native's perceived local amenities.