Buy a House, Get a Visa

The always interesting Marginal Revolution blog, endorses an idea so simple and smart, it must have no chance of succeeding. Thomas Friedman describes the source of the idea:

Leave it to a brainy Indian to come up with the cheapest and surest way to stimulate our economy: immigration.

Gary Shilling outlines the idea:

The Obama administration should seriously consider granting resident status to foreigners who buy surplus houses in this country. This makes more sense than the president's $275 billion housing bailout plan, which Americans greeted with a Bronx cheer.

The housing bailout ... doesn't get to the basic problem -- the huge inventory of excess houses. We estimate that 2.4 million houses over and above normal working inventories are left over from the 1996-2005 housing bubble. That's a lot, considering the long-term average annual construction of 1.5 million single- and multi-family units.

Excess inventory is the mortal enemy of house prices, which have already fallen 27% since the peak in early 2006. We predict another 14% drop through the end of 2010 if nothing is done to eliminate the surplus.

Doing nothing to eliminate the excess inventory might well push the recession through 2010 and into a depression. Declining home values, for example, are eliminating the home equity that has funded oversized consumer spending for years.

A better idea is to offer permanent residence status to the many foreigners who are clamoring to get into the U.S. -- if they buy houses of minimal values (not shacks). They wouldn't need to live in those houses, but in order to remove the unit from the total housing market, they couldn't rent them. Their temporary resident status granted upon purchase would become permanent after, perhaps, five years, if they still owned the houses and maintained clean records. The mere announcement of this program might well stop the ongoing collapse in house prices, especially in cities such as Las Vegas, Miami, Phoenix and San Francisco, where prices are down 40% -- but where many foreigners like to live.

All articles referenced are copied in full at end of post.

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Immigrants Can Help Fix the Housing Bubble

MARCH 17, 2009, 9:49 A.M. ET

By RICHARD S. LEFRAK and A. GARY SHILLING

The Obama administration should seriously consider granting resident status to foreigners who buy surplus houses in this country. This makes more sense than the president's $275 billion housing bailout plan, which Americans greeted with a Bronx cheer.

The federal bailout forces taxpayers to subsidize overextended homeowners who bet on ever-rising house prices and used their abodes as ATMs, and it doesn't get to the basic problem -- the huge inventory of excess houses. We estimate that 2.4 million houses over and above normal working inventories are left over from the 1996-2005 housing bubble. That's a lot, considering the long-term average annual construction of 1.5 million single- and multi-family units.

Excess inventory is the mortal enemy of house prices, which have already fallen 27% since the peak in early 2006. We predict another 14% drop through the end of 2010 if nothing is done to eliminate the surplus.

Doing nothing to eliminate the excess inventory might well push the recession through 2010 and into a depression. Declining home values, for example, are eliminating the home equity that has funded oversized consumer spending for years.

As consumers retrench, production is cut, payrolls are slashed, and consumer confidence, incomes and spending are savaged in a self-feeding downward economic spiral. But if the government buys surplus houses and sells them at low market-clearing prices, other house prices will drop, destroying more home equity and driving many more mortgages under water. Bulldozing excess houses would be an inefficient end for perfectly habitable structures.

A better idea is to offer permanent residence status to the many foreigners who are clamoring to get into the U.S. -- if they buy houses of minimal values (not shacks). They wouldn't need to live in those houses, but in order to remove the unit from the total housing market, they couldn't rent them. Their temporary resident status granted upon purchase would become permanent after, perhaps, five years, if they still owned the houses and maintained clean records. The mere announcement of this program might well stop the ongoing collapse in house prices, especially in cities such as Las Vegas, Miami, Phoenix and San Francisco, where prices are down 40% -- but where many foreigners like to live.

Each year, 85,000 H-1B visas are granted for foreigners with advanced skills and education, and last year, 163,000 petitions were filed in the first five days after applications were accepted. The Ewing Marion Kauffman Foundation estimates that as of Sept. 30, 2006, 500,040 residents of the U.S. and 59,915 individuals living abroad were waiting for employment-based visas. Many would buy homes if their immigration conditions were settled.

These people tend to be highly productive. In 2006, foreign nationals residing in the U.S. were listed as inventors on 25.6% of the patent applications filed in the U.S., up from 7.6% in 1998. A Council of Graduate Schools survey found that in the fall of 2007, 241,095 non-U.S. citizens were enrolled in graduate programs. Some 55% were in engineering and the biological and physical sciences, compared with only 16% of U.S. citizens. In 2007, more people on temporary visas received doctorates in physical sciences and engineering than U.S. citizens.

There is a high correlation between education and incomes, and in today's uncertain economic climate, many wealthy foreigners desire U.S. resident status just as a number in Hong Kong secured residences in Singapore and Canada before the British handover to China in 1997. They rapidly became over a quarter of Vancouver's population, and brought in billions of dollars to buy houses and make other investments.

We could benefit from such an influx. Merrill Lynch estimates that in 2007 there were 10.1 million individuals in the world, 7.1 million outside the U.S., with at least $1 million in financial assets that totaled $29 trillion. If new immigrants bought the 2.4 million excess houses at today's $184,000 median price with funds from abroad, they would bring untold billions. The immigrants would also buy consumer goods, pay taxes, and start many new businesses.

The blueprint for a program to sell surplus housing to immigrants is already in place with the EB-5 visa program. Each year, 10,000 EB-5 visas for this country are available for foreigners who each invest $1 million in a new enterprise ($500,000 in economically depressed areas) that creates at least 10 full-time jobs. After two years, the entrepreneur and his family can become permanent residents.

America's relatively open immigration policy makes this country better off than many other developed lands whose governments also must fund the pensions and health care for growing numbers of retirees. Yet there's still a huge need for more productive and skilled people, both current residents and immigrants, who will produce enough goods and services to provide for their own needs and for those in retirement. Otherwise, entitlement spending eventually will touch off intergenerational warfare.

Granting permanent resident status to foreigners who buy houses in this country will curtail a primary driver of the deepening recession and financial crises -- excess house inventories and the resulting collapse of prices. Since the people who will buy these houses will tend to have money, education, skills and entrepreneurial talents, they will be substantial assets to America in both the short and long runs.

Mr. LeFrak is chairman and CEO of LeFrak Organization, a real estate builder and developer. Mr. Shilling, an economic consultant and investment adviser, is president of A. Gary Shilling & Co.
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Buy a House, Get a Visa (2)

The buy a house, get a visa program which I have been pushing for some time is getting some serious play. Writing in the WSJ, Richard Lefrak and Gary Shilling note:

The blueprint for a program to sell surplus housing to immigrants is already in place with the EB-5 visa program. Each year, 10,000 EB-5 visas for this country are available for foreigners who each invest $1 million in a new enterprise ($500,000 in economically depressed areas) that creates at least 10 full-time jobs. After two years, the entrepreneur and his family can become permanent residents.

Why not reduce the investment required and expand the program to 100,000?

Barry Ritholz has further thoughts and links. Thanks to Jim Ward for the pointer.

Posted by Alex Tabarrok on March 22, 2009 at 07:40 AM in Economics | Permalink
Comments

The no free lunch department requests an accounting of the downsides. (Other than the "foreigners suck our jobs away" argument which is a known issue.)

Posted by: Andrew at Mar 22, 2009 8:01:00 AM

Possible TINSTAAFL side-effects for Andrew:

Rich foreigners who otherwise wouldn't meet the requirements to get in might be able to find easier access through this.

All some of this investment could go to less-useful programs, though it seems they'd go to less-useful programs in the US and the "more useful" programs would be over seas. So less efficient global allocation of capital.

Foreign capital crowds out native US investors who would otherwise have invested in these opportunities, potentially driving US capital overseas.

All of these seem pretty benign to me. I really like this idea. We always like to tell ourselves that one of the things that makes the US great is the freedom it offers. Seems like if we're concerned about strengthening this country, we should be willing to use this as a selling point to bring in foreign capital and foreign skilled laborers.

Posted by: mravery at Mar 22, 2009 10:26:08 AM

In the last 10 years the average the average number of people utilizing the EB-5 visa is less than 800 per year.

Posted by: Zack at Mar 22, 2009 10:57:00 AM

The downside is that sooner or later, bleeding hearts will start whining about how unfair this is to immigrants who can't afford a house. At that point, congress will figure out a way to subsidize it.

Posted by: ian at Mar 22, 2009 11:26:29 AM

This is an interesting idea.

But what about starting new programs? Like: 1) Individuals who owe backtaxes get a pass if they buy a foreclosed home; 2) nature conservancies can get a matching grant from the government if that non-profit turns swaths of depressed/ghost-towns into nature preserves; 3) people in depressed areas are paid to moved to high-growth areas; etc.

Honestly, those would do better than expanding the EB-5 program.

Possibly some of the reasons why foreign capitalists are not applying to this program is droves are: 1) the US is not THAT desirable to rich foreigners; 2) rich foreigners do not see an economic advantage coming to the US or gaining US citizenship (which one might believe cause sneaking around taxes in Spain, Italy, Turkey, Laos, etc. is easier than in the US); 3) once rich foreigners become rich Americans their assets and earned income anywhere in the world are taxable by the IRS & due to new-ish agreements with secret banking states (the Swiss, Luxembourg, etc) offshore accounts are now easier to identify; and 4) if you had the money to life anywhere in the world would you really WANT to live in Detroit or some other economically depressed US city/state? (Put another way, if you one the Powerball, what incentive would you need to move to Moscow or Bombay or Mexico City [and those are fun cities]?)

Posted by: Jim at Mar 22, 2009 11:30:22 AM
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The Open-Door Bailout By THOMAS L. FRIEDMAN

February 11, 2009 - Bangalore, India

Leave it to a brainy Indian to come up with the cheapest and surest way to stimulate our economy: immigration.

“All you need to do is grant visas to two million Indians, Chinese and Koreans,” said Shekhar Gupta, editor of The Indian Express newspaper. “We will buy up all the subprime homes. We will work 18 hours a day to pay for them. We will immediately improve your savings rate — no Indian bank today has more than 2 percent nonperforming loans because not paying your mortgage is considered shameful here. And we will start new companies to create our own jobs and jobs for more Americans.”

While his tongue was slightly in cheek, Gupta and many other Indian business people I spoke to this week were trying to make a point that sometimes non-Americans can make best: “Dear America, please remember how you got to be the wealthiest country in history. It wasn’t through protectionism, or state-owned banks or fearing free trade. No, the formula was very simple: build this really flexible, really open economy, tolerate creative destruction so dead capital is quickly redeployed to better ideas and companies, pour into it the most diverse, smart and energetic immigrants from every corner of the world and then stir and repeat, stir and repeat, stir and repeat, stir and repeat.”

While I think President Obama has been doing his best to keep the worst protectionist impulses in Congress out of his stimulus plan, the U.S. Senate unfortunately voted on Feb. 6 to restrict banks and other financial institutions that receive taxpayer bailout money from hiring high-skilled immigrants on temporary work permits known as H-1B visas.

Bad signal. In an age when attracting the first-round intellectual draft choices from around the world is the most important competitive advantage a knowledge economy can have, why would we add barriers against such brainpower — anywhere? That’s called “Old Europe.” That’s spelled: S-T-U-P-I-D.

“If you do this, it will be one of the best things for India and one of the worst for Americans, [because] Indians will be forced to innovate at home,” said Subhash B. Dhar, a member of the executive council that runs Infosys, the well-known Indian technology company that sends Indian workers to the U.S. to support a wide range of firms. “We protected our jobs for many years and look where it got us. Do you know that for an Indian company, it is still easier to do business with a company in the U.S. than it is to do business today with another Indian state?”

Each Indian state tries to protect its little economy with its own rules. America should not be trying to copy that. “Your attitude,” said Dhar, should be “ ‘whoever can make us competitive and dominant, let’s bring them in.’ ”

If there is one thing we know for absolute certain, it’s this: Protectionism did not cause the Great Depression, but it sure helped to make it “Great.” From 1929 to 1934, world trade plunged by more than 60 percent — and we were all worse off.

We live in a technological age where every study shows that the more knowledge you have as a worker and the more knowledge workers you have as an economy, the faster your incomes will rise. Therefore, the centerpiece of our stimulus, the core driving principle, should be to stimulate everything that makes us smarter and attracts more smart people to our shores. That is the best way to create good jobs.

According to research by Vivek Wadhwa, a senior research associate at the Labor and Worklife Program at Harvard Law School, more than half of Silicon Valley start-ups were founded by immigrants over the last decade. These immigrant-founded tech companies employed 450,000 workers and had sales of $52 billion in 2005, said Wadhwa in an essay published this week on BusinessWeek.com.

He also cited a recent study by William R. Kerr of Harvard Business School and William F. Lincoln of the University of Michigan that “found that in periods when H-1B visa numbers went down, so did patent applications filed by immigrants [in the U.S.]. And when H-1B visa numbers went up, patent applications followed suit.”

We don’t want to come out of this crisis with just inflation, a mountain of debt and more shovel-ready jobs. We want to — we have to — come out of it with a new Intel, Google, Microsoft and Apple. I would have loved to have seen the stimulus package include a government-funded venture capital bank to help finance all the start-ups that are clearly not starting up today — in the clean-energy space they’re dying like flies — because of a lack of liquidity from traditional lending sources.

Newsweek had an essay this week that began: “Could Silicon Valley become another Detroit?” Well, yes, it could. When the best brains in the world are on sale, you don’t shut them out. You open your doors wider. We need to attack this financial crisis with green cards not just greenbacks, and with start-ups not just bailouts. One Detroit is enough.
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