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Schumer sponsors bill to bail out housing industry by selling temporary visas to immigrant investors; wouldn't this distort the market (and maybe even help AY)?

Apparently, essentially selling green cards through the questionable EB-5 program--under which prospective immigrants must create ten purported jobs with their $500,000 investment--was only the start.

Now Congress is considering selling three-year residence visas to foreigners who invest $500,000 in the housing market, and co-sponsor Sen. Chuck Schumer (D-NY) somehow thinks "it won't cost the government a nickel."

Schumer doesn't seem familiar with opportunity cost, the notion that we might choose a different alternative that could prove more beneficial.

For example, immigration analyst David North of the conservative Center for Immigration Studies thinks EB-5 investors should also have to buy a $50,000 U.S. bond for each visa issued. So why not ask prospective home purchasers do more than bail out the housing industry in exchange for those visas?

Schumer's proposal could have major unintended consequences, such as rising prices in prime areas (Hello, Brooklyn) while little impact on foreclosed subdivisions in, say, suburban Las Vegas. (See similar skepticism from a law firm involved in EB-5.)

But this bill, which requires investors to pay cash, will surely gain support from FIRE (Finance, Insurance, Real Estate), the pillars of New York City's uneven economy and, not coincidentally, Schumer campaign support. The founder of the Toll Brothers firm is already on board.

Heck, it just might goose demand for Forest City Ratner's unbuilt luxury condos in the Atlantic Yards project. After all, if the developer wants to sell condos in 2015 for $1217/sf--more than double nearby Atlantic Terrace, it sure helps if buyers care more about visas than price.

A sponsor's justification

Co-sponsor Senator Mike Lee (R-UT) issued a press release:
To confront the housing crisis, the legislation would provide, for the first time, a three-year residential visa for foreign nationals who invest at least $500,000 in residential real estate in the United States. At least $250,000 must be spent on a primary residence where the visa holder will reside for at least 180 days out of the year while paying taxes to the U.S.  Applicants would still be subject to standard criminal and national security background checks and, once approved, would not be able to receive government benefits such as Medicare, Medicaid, and Social Security.  The program would not serve as a path to citizenship for foreign nationals.
Lee later called it more of a "travel visa." So this would differ from EB-5, which, as noted below, may suffer in comparison, though only the latter is a path to citizenship.

In a remarkable piece of doublespeak, Lee stated:
The purpose of this bill is to support a free market method of increasing demand for housing at a time when so many working-class Americans are underwater on their homes are desperate for prices to rise again and big-government programs have failed to work.
From the Journal

Most coverage yesterday derived from a single article yesterday in the Wall Street Journal, headlined Foreigners' Sweetener: Buy House, Get a Visa. (The reporter on the piece observed unwisely, in a video interview, "What's not to like about this?") After

After Schumer held a conference call with reporters, other coverage ensued, including this Times blog post.

From the Journal:
The reeling housing market has come to this: To shore it up, two Senators are preparing to introduce a bipartisan bill Thursday that would give residence visas to foreigners who spend at least $500,000 to buy houses in the U.S.

The provision is part of a larger package of immigration measures, co-authored by Sens. Charles Schumer (D., N.Y.) and Mike Lee (R., Utah), designed to spur more foreign investment in the U.S.

...To fuel this demand, the proposed measure would offer visas to any foreigner making a cash investment of at least $500,000 on residential real-estate—a single-family house, condo or townhouse. Applicants can spend the entire amount on one house or spend as little as $250,000 on a residence and invest the rest in other residential real estate, which can be rented out.

The measure would complement existing visa programs that allow foreigners to enter the U.S. if they invest in new businesses that create jobs. Backers believe the initiative would help soak up an excess supply of inventory when many would-be American home buyers are holding back because they're concerned about their jobs or because they would have to take a big loss to sell their current house.

"This is a way to create more demand without costing the federal government a nickel," Sen. Schumer said in an interview.
Some skepticism

While the Journal found industry analysts who welcome the bill, some didn't:
But other industry executives greeted the proposal with skepticism. Foreign buyers "don't need an incentive" to buy homes, said Richard Smith, chief executive of Realogy Corp., which owns the Coldwell Banker and Century 21 real-estate brands. "We have a lot of Americans who are willing to buy. We just have to fix the economy."
The measure may have a more targeted effect in exclusive markets like San Marino, Calif., that have become popular with foreigners. Easier immigration rules could be "tremendous" because of the difficulty many Chinese buyers have in obtaining visas, says Maggie Navarro, a local real-estate agent.
From the comments

The comments on the Journal site include some pointed criticism along the lines noted above, though some saw it as a ploy to increase tax revenues if the Internal Revenue Service can reach the new residents' worldwide incomes.

Distorting the market:
Ok, increase the average value of housing. Lets think about that for a second. Obvious losers: anyone who wants to buy a home in their life time who does not currently own one.
Obvious winners: anyone trying to liquidate (half) million dollar homes. Maybe some people who have several million dollar homes to sell..... BECAUSE THEY JUST FORCLOSED ON HUNDREDS OF THEM.

The main benefactors of this bill will be the banks who have foreclosed on over leveraged homes. I'm no OWS hippy, I'm a banker. Discussing this bill as immigration policy is downright criminal. 
Bad landlords:
Do you really want to encourage a wave of real estate speculators looking to buy rental properties when they otherwise plan to remain overseas? It is my experience that the best scenario is when the land lord lives within or near the community so they can personally keep an eye on the state of the property or be held accountable if they are neglecting it.
The impact on EB-5:
The EB-5 program already does what you want and it forces the foreign investor to create 10 jobs as part of the $500,000 investment. The Shumer bill may be bipartisan, but it is stupid if you know this field. As part of the EB-5 investment more than 90% of my clients buy houses in the United States anyway. There will be no "boom" in the real estate market. In fact, you will be withdrawing $1.3 billion from the United States real estater market because the EB-5 investors invest primarily in commercial real estate and healthcare projects. EB-5 works and has worked well for nearly 20 years. I find amusing that politicians looking for headlines throw these ideas against the wall even when, in the end, they will clearly hurt the US economy versus the system we already have. EB-5 has exploded int he past 4 years and to cut the legs out from it would destroy commercial real estate and abandon the 26,000 american jobs created last year.
A supporter:
Why can't folks read an article and actually understand the merits of a proposal. This bill is not giving a green card--or path to citizenship--to anyone. It is basically a retiree's visa. It is saying, if you have $500,000 in cash, and can live in the United States without working here, we will allow you to live here in retirement and spend your money here instead of somewhere else as long as you buy housing here (which will have the incidental affect of helping to stabilize housing prices).

Comments

  1. As a recent immigrant to the US (from Canada) I think critics of the bill have grossly underestimated the spinoff benefits of this proposed program.

    As a previous "snowbird" we came for years and rented. Now as a resident we not only bought a home, we also have bought a portfolio of rental properties. We have also bought vehicles, furniture, and have become part of the tax paying system.

    All of the properties we bought required substantial repairs and we now employ full time contractors to renovate and maintain our homes.

    As Warren Buffet said, "imagine if 500,000 investors like us brought our capital here. "

    Until the US fixes it's real estate problems which are the root of the economic downturn, this recession isn't going away any time soon.

    ReplyDelete

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