Saturday, October 22, 2011

Does Warren Buffett really back Schumer's plan to trade visas for home purchases? It was more an offhand remark amid support for the market's workings

Did billionaire Warren Buffett really back the proposal, co-sponsored by Sen. Chuck Schumer (D-NY) and Mike Lee (R-UT), to stimulate housing demand by offering visas to immigrants who spend $5000,000 in cash for housing?

Despite widespread coverage saying just that, the evidence is far more murky. Actually, Buffett made an offhand, somewhat fanciful comment--not a policy proposal--while urging that the free market work its course, as the video below indicates.

Framing Buffett's support

From Lee's press release:
Famed investor Warren Buffett has also supported the concept of enticing foreign homebuyers previously.
The Wall Street Journal reported:
The idea has some high-profile supporters, including Warren Buffett, who this summer floated the idea of encouraging more "rich immigrants" to buy homes. "If you wanted to change your immigration policy so that you let 500,000 families in but they have to have a significant net worth and everything, you'd solve things very quickly," Mr. Buffett said in an August interview with PBS's Charlie Rose.
The New York Times reported:
The proposal is based on an idea supported by Warren E. Buffett, and has been endorsed by the U.S. Chamber of Commerce and leading industry groups. Mr. Schumer said the Obama administration received the proposal on Wednesday and had yet to comment on it.
NPR reported:
The concept appears to have broad support. Billionaire Warren Buffett endorsed it as an effective way of getting rid of excess housing inventory in an August interview with Charlie Rose.

"If you wanted to change [the] immigration policy so that you let 500,000 families in, but they'd have to have significant net worth and everything, you'd solve things very quickly," Buffett said.
The BBC reported:
The idea has also been supported by billionaire investor Warren Buffett.

"If you wanted to change your immigration policy so that you let 500,000 families in but they have to have a significant net worth and everything, you'd solve things very quickly," Mr Buffett told PBS's Charlie Rose in August.
What Buffett actually said

Let's go to his August 2011 interview with Rose, beginning at about 16:58. It doesn't sound like a policy proposal to me and I bet if Buffett were challenged to think about it, he might wonder if visas were being given away a bit too easily.

(Similarly, I bet if he were to look carefully at the EB-5 program, which offers visas to immigrants who purportedly create ten jobs in exchange for their $500,000 investment (as with Atlantic Yards), he might be a little skeptical.)



Here's an excerpt from the transcript.

BUFFETT: I mean this -- this is a huge correction of a bubble that popped.

ROSE: And -- and what is necessary to take place over the next two years in order to increase household formation and decrease the amount of construction?

BUFFETT: Well, we’re doing pretty well on the decrease in construction.

...ROSE: Demand is a factor in that.

BUFFETT: Demand is a factor and we artificially gave it a little boost when we went with the credit a year or two ago on -- on -- on purchase of homes. I think it’s a mistake to try and -- to try and front end it. I mean it just delays the eventual recovery. If you’ve gone in excess of something -- if I’ve got too many purple dresses and I run a dress shop, I get rid of those purple dresses and -- and then I can start all over again with the dresses that the people want.

ROSE: Yes.

BUFFETT: And I -- I mark them down to whatever it takes. You could -- you could -- you could have -- you could have a bunch of rich immigrants come in and they’d all need houses, for example. I mean if you wanted to change your immigration policy so that you let 500,000 families in but they have to have a significant net worth and everything, you’d -- you’d solve things very quickly. But naturally it’s being solved. Capitalism is solving this. But we’re fortunate in doing this, Japan has a declining population. I mean, if they get in excess of something it isn’t going to get worked off. We have households being formed every day. I’ve got a grandson getting married this weekend so we’re -- we’re forming them all the time. And -- and we’re forming it a lot faster than we’re building homes.

(Emphasis added)

Note that all the news coverage omitted the next sentence Buffett uttered: But naturally it’s being solved.

Sure, there's room to disagree on whether, in the housing market, more should be done to support homeowners and avoid community dislocation. But an offhand remark, amid a larger call for the free market, should not be seen as a policy prescription.

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