The phrase “jobs Americans won’t do” all too often serves as a rationale for maintaining high levels of immigration. Get set for an equally dubious idea to justify mass immigration: “housing Americans can’t buy.” Senators Charles Schumer, D-N.Y., and Mike Lee, R-Utah, among others, are believers. And they’re offering a sweet deal.
This October, the two lawmakers unveiled the Visa Improvements to Stimulate International Tourism to the United States of America Act, or VISIT-USA Act (S.1746). A key element of the bill would provide renewable three-year resident visas to foreign nationals who invest at least $500,000 in residential real estate here. The plan, they argue, would turbo-charge our flagging housing industry and without incurring a subsidy. Supporters seem not to have pondered the downsides.
Since the virtual collapse of home mortgage lending during 2007-08, boosting homeownership has become a growth industry in its own right, especially in Washington. Among key steps, the Bush administration created a temporary first-time homebuyer tax credit, which Congress and the Obama administration promptly expanded the following year. And the Obama White House, only a couple months in office, created the Home Affordable Modification Program (HAMP), which enables distressed mortgage borrowers to renegotiate loans at favorable rates. And several weeks ago President Obama revealed the “We Can’t Wait” phase of his anti-foreclosure campaign. Building on HAMP, it would reduce monthly payments for homeowners who currently owe more than their properties are worth, a phenomenon known as being “underwater.” The program would allow distressed borrowers to refinance their mortgages at rates as low as 4 percent. Some 10 million households – about one in four with a mortgage – are in this situation.
The home purchase incentive of the VISIT-USA Act is another version of a demand-side bailout. The program would offer a three-year renewable visa for foreigners who invest $500,000 or more in residential real estate, at least $250,000 of which must go toward a primary residence. Dwellings purchased for nonresidential purposes could be rented out. The visa holder must agree to live in the primary residence for at least 180 days a year and pay U.S. income taxes on foreign earnings. All purchases would have to be in cash – no mortgage or home equity loan would be allowed.
To allay fears of fraud, or worse, terrorism, the program would subject applicants to criminal and security background checks. If approved, participants would not be eligible for Medicare, Medicaid and Social Security benefits. Their visas could not serve as a path to U.S. citizenship or as an authorization to work. A property sale would render the visa invalid. To encourage participation, homebuyers could bring over spouses and minor children.
Sponsors tout the proposal as a bipartisan tonic for a sluggish housing industry. “This concept has the potential to lift demand for the nation’s excess homes,” remarked Senator Schumer at the bill’s unveiling. “Our housing market will never begin a true recovery as long as our housing stock so greatly exceeds demand. This is not a cure-all, but it could be part of the solution to the housing crisis and won’t cost the government a nickel.” His Utah Republican (and Tea Party-supported) colleague, Senator Lee, similarly noted: “This bill supports a free-market method for 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. I am sponsoring this bill because I know that it makes economic sense while protecting American citizens.”
Interest groups also have coalesced around the housing visa provision and its larger legislation. U.S. Chamber of Commerce President Thomas Donohue issued the following statement: “For too long, we have created barriers, and too many hoops and hurdles, which act to deter visitors from other countries coming to the United States to spend their money and create jobs…We can address these barriers and still protect the security of the United States. The Schumer-Lee bill meets these twin goals.” Other organizations supporting the measure include the U.S. Travel Association, the American Hotel & Lodging Association and the U.S. Olympic Committee. For good measure, multibillionaire investor Warren Buffett, in an interview this August with PBS’ Charlie Rose, also endorsed the idea. “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,” Buffett said.
Before Congress gets on the bandwagon, it is important to remember that the first-time homebuyer tax credit and HAMP programs also enjoyed a “too good to fail” aura, yet experienced major unexpected roadblocks. Let’s have a brief look at each.
The tax credit, hurriedly created in the summer of 2008 during the Bush administration, provided a temporary credit of up to $7,500 to first-time homebuyers. In 2009, at the strong urging of President Obama, Congress twice extended and expanded the program as part of separate economic stimulus packages. The first renewal raised the ceiling to $8,000, repealed the repayment requirement, and broadened the definition of new buyers to include those who haven’t owned a home within the last three years. The second expansion raised the already-high income ceilings of $75,000 (singles) and $150,000 (married couples) to a respective $125,000 and $225,000, and also created a separate credit of up to $6,500 for existing homeowners.
The subsidy would prove unnecessary. A 2009 Brookings Institution study estimated that 85 percent of the (by then) nearly two million program participants would have bought a home anyway. Fraud also was extensive. IRS Inspector General J. Russell George testified before a House subcommittee in October 2009 that nearly 20,000 applicants falsely claimed a combined $139 million on their 2008 tax returns before (rather than after) purchase; another 74,000, contrary to program rules, had owned a home within the previous three years. More than 50 IRS employees, he added, had filed “illegal or inappropriate” claims. The program expired on April 30, 2010.
The HAMP program, in the process of being phased out, cuts monthly payments for potentially millions of at-risk borrowers, giving them a chance to rebuild their credit. Launched by the Obama administration in April 2009, it draws upon as much as $50 billion of Bush-era Troubled Asset Relief Program (TARP) funds and another $25 billion from secondary mortgage lending giants Fannie Mae and Freddie Mac, which were placed under emergency federal conservatorship in September 2008. Yet only about $2.4 billion of that $75 billion had been spent by October. Think of that as a plus. Data collected by the Treasury Department, the Office of the Comptroller of the Currency, and the Office of Thrift Supervision show unusually high rates of default in the program’s trial and permanent loan modification phases. This past March, the House of Representatives voted 252-170 for early termination (H.R. 839); the expiration date originally had been set at December 31, 2012. The Senate has yet to take action on an identical bill (S.527).
That brings us to the VISIT-USA bill. The mechanism is different, but the goal is the same: boosting homeownership demand. And it ostensibly would do so without imposing any taxpayer burden – at least not directly. Yet it’s important to read between the lines to see some likely unwanted consequences.
First, consider buyer composition. Who has $500,000 on hand to invest in American housing – be it a single-family detached, condominium or townhouse – and is willing to live in it for at least half the year? There are only so many legitimate businessmen, retirees and heirs from around the world to go around. Common sense dictates that any number of disreputable investors will participate to acquire a coveted resident visa. As the blogsite Diplopundit puts it: “Wanna guess who has that much cash floating around? Well, for starters, dictators, drug lords, drug traffickers and their girlfriends/boyfriends always have that much cash around, in case.”
Supporters of the bill respond that visa holders would include people who come here for legitimate work. But aside from the dubious wisdom of displacing native-born workers, we already provide work visas, E1 through E5, ranked according to priority. The VISIT-USA bill’s housing visa, at bottom, would function as the standard B-2 visitor’s visa all but in name. The people who have $500,000 to spend on American real estate would qualify for a B-2 anyway. Moreover, a B-2 carries no restrictions on home purchases. This program would be entirely redundant.
Second, the program would pose real national security issues. Supporters of the bill assure doubters that the State Department will thoroughly screen all applicants to ensure the U.S. won’t serve as a safe haven for the world’s riff-raff. But will it? The overworked State Department – which, remember, granted legal temporary visas to all 19 of the 9/11 terrorist hijackers – for years has been swamped with visa applications. To make the intended impact on homeownership demand, applicants would have to number in the hundreds of thousands over the next several years. It is difficult to imagine the department having the resources to vet all comers on top of those seeking entry.
And that’s just the front end. During the visa holder’s stay, the U.S. Department of Homeland Security’s Immigration and Customs Enforcement (ICE), another overworked agency, would have to investigate all investors to make sure they are living in their primary residence for the minimum duration. The only way they could enforce that requirement effectively is to conduct semi-regular home visits. And because the three-year visas are renewable, any number of recipients will want to reapply, a surefire way to load more tasks upon the ICE bureaucracy.
There also is the issue of monitoring the movement of persons who choose to leave their home but remain in the U.S. As it is, nearly half of our estimated 12 million illegal immigrants came here on a legal temporary visa, but refused to leave upon expiration. Perhaps the most problematic aspect of the program is that dwellings purchased for nonresidential purchases could be leased out. An owner-investor can plead innocent if criminal activity is suspected or discovered among tenants. ICE would have to monitor rental applicants as well as buyers. Contrary to Sen. Schumer’s assurances, all this program administration and enforcement will cost taxpayers – and plenty.
Third, even assuming logistical difficulties are surmountable, the economic need for such a program is doubtful at best. The U.S. homeownership market, to be sure, is down from its peak of a half-decade ago. One hardly would expect otherwise given the subsequent mortgage meltdown. But the image of mass vacancies is not borne out by the evidence. Census Bureau figures indicate that during 1996-2005, the homeowner vacancy rate in the U.S. (First Quarter) rose slightly from 1.6 percent to 1.8 percent. It then rose to 2.9 percent over the following two years, but since has fallen to 2.6 percent. These numbers aren’t indicative of any crisis. The housing market by nature goes through peak and trough periods. Our current trough is unusually deep because the 2002-06 ramp-up was unusually rapid, driven by artificially-generated cheap credit, rapid securitization of mortgages, and a federally-driven obsession with “reaching” low- and moderate-income black and Hispanic borrowers. The latent demand for another housing boom lies within our borders. We do not have to import it.
Much current demand for homeownership, in fact, already is driven from abroad. The National Association of Realtors calculates that residential sales to foreigners and recent immigrants totaled $82 billion during the 12-month period ending March 2011. That’s up from $66 billion from the period April 2009-March 2010. In the Miami and Phoenix areas, foreign-born buyers accounted for a respective 5.5 percent and 4.3 percent (or more) of all home sales in July 2011, according to MDA DataQuick. Sally Daley, a real estate agent in Vero Beach, Fla., estimates about a third of her sales in 2011 were to the foreign-born, an all-time high. “Without them, they would be stagnant,” she notes.
Canadians over the past year comprised about a fourth of all buyers. And Chinese accounted for a sizable portion as well. This is significant because much of the VISIT-USA bill is explicitly geared toward preferential treatment to persons from Canada and mainland China. The legislation would grant Chinese tourists access to multiple-entry visitor visas good for five years. Currently, visitors from mainland China must reapply each year. As for Canadians, they would be allowed to stay in the U.S. for more than 180 days without having to obtain a visa. The legislation also creates a new “Canadian retiree (nonresident) visa” for persons from Canada over age 50 who can show they own a residence here or have purchased rental or hotel accommodations for the duration of their stay. When it comes to Chinese and Canadians, Schumer and Lee apparently go by the philosophy, “The more, the better.”
Moreover, purchases by the foreign-born tend to be skewed at the upper end of the market, especially in high-cost states and metropolitan areas. Foreign investors comprise about 10 percent of the luxury home market in this country, notes Sandra Miller, a Santa Monica, Calif. real estate agent with the Hamburg, Germany-based Engel & Volkers. Miller, who supports the Schumer-Lee gambit, estimates that offering U.S. visas a reward for investing $500,000 or more could triple that share, not to mention boost house prices in states and localities with high concentrations of foreign buyers. “California, Florida, New York, Colorado, Hawaii and Texas – those states will see a huge increase in demand,” she added. “The whole Westside (Los Angeles) would certainly benefit.” In affluent San Marino, California (Los Angeles County), a community whose median home sales price in 2010 was around $2 million, a local real estate agent, Maggie Navarro, waxes enthusiastic over the prospect of easing immigration requirements for Chinese buyers in particular. She recently sold a home for $1.67 million, about 8 percent above asking price, to a Chinese national. Navarro adds that nearly every listing she has in San Marino “has had at least one full price cash offer from a buyer from mainland China.”
Understand that what we call “the housing market” is actually a network of interrelated local markets. And the local markets exhibiting the highest rates of default, foreclosure and vacancies aren’t likely destinations for wealthy foreign homebuyers. A good example can be found in Northern California. The Stockton area was extremely hit hard by the mortgage meltdown. Indeed, the city of Stockton, population 300,000, is known as “the foreclosure capital of America.” San Francisco, a 90-minute drive westward, is in no danger of claiming that title. Not to be snobbish about this – Stockton has its share of amenities – but wealthy foreigners are going to prefer San Francisco to Stockton as a place to live. They already have serious money. An area’s high vacancy rate (and low prices) won’t be much of a selling point for them. Yet given that the stated purpose of the Schumer-Lee plan is to soak up excess housing inventory in depressed markets – like Stockton – the proposal unwittingly would lower vacancies and drive up prices in already expensive markets like San Francisco.
On second thought, maybe there is an ulterior purpose behind VISIT-USA. It’s significant that the lead player is Charles Schumer, chairman of the Senate Judiciary Committee’s subcommittee on Immigration, Refugees and Border Security. Sen. Schumer over the past decade has been a vocal booster of amnesty for illegal immigrants. Indeed, with the exception of the late Ted Kennedy, D-Mass., and the retired Arlen Specter, R-Pa., it’s hard to think of any senator in recent memory so obsessed with promoting mass immigration. Senator Mike Lee, a freshman, can be seen as along for the ride, lending a misleading aura of bipartisanship and market economics.
In the end, there is no such thing as “housing Americans can’t buy.” More accurately, the problem is housing that Americans can’t buy at a given asking price. Which is to say that if house prices have to come (and stay) down for a few extra years to generate sales, so be it. And if this depresses real estate commissions and property tax receipts for a few extra years, that’s a modest price to pay to maintain our nation’s security, sovereignty and rule of law. At least one major player in the real estate industry, Richard Smith, CEO of Realogy Corp., the New Jersey-based parent company of Coldwell Banker and Century 21, understands that we don’t have to import our way out of a housing recession. “We have a lot of Americans who are willing to buy. We just have to fix the economy.”