Could Immigrants Help Solve Our Excess Housing Problem?

According to reports in the Wall Street Journal and Los Angeles Times this morning legislation is being considered in the Senate that would allow immigrants who spend at least $500,000 cash on a home to get a visa.  At least $250,000 must be used on a primary residence, the rest of the money could be used on investment properties.  The visa would only be for residence, and these foreigners would have to attain a work visa through normal channels. This bill is being proposed by a Democrat, Senator Chuck Schumer of New York and a Republican, Senator Mike Lee of Utah.

Immigration is obviously a hot-button issue in this country, and I don’t know if anyone really has the political capital to turn such a proposal into law, but the idea is interesting.

The massive supply of unsold homes (both on the market and in shadow inventory), coupled with the lack of demand for these homes has caused home prices to fall precipitously since the housing bubble burst in late 2006-early 2007.  On average, home prices are down about 1/3 since the peak of the market.

The ensuing foreclosure boom lead to a record number of unsold homes.  High unemployment, uncertainty about the future, lack of consumer confidence, and tightening credit all contributed to a lack of demand for homes.  Econ 101 tells us that this disparity in supply and demand would cause prices to fall, and fall they did.

According to the Journal article:

“International buyers accounted for around $82 billion in U.S. residential real-estate sales for the year ending in March, up from $66 billion during the previous year period, according to data from the National Association of Realtors. Foreign buyers accounted for at least 5.5% of all home sales in Miami and 4.3% of Phoenix home sales during the month of July, according to MDA DataQuick”.

I question how effective this measure would be for a variety of reasons.  The first reason is the massive size of the housing overhang. Its hard to pin down exactly how much shadow inventory there is for a variety of reasons, but a recent Harvard study suggested the overhang may be as large as 2.6 million homes (see Page 8 of this study).  The second reason is the limitations of the visa that would accompany the home purchase.  That the visa doesn’t allow the home purchaser to work in this country seems to limit the number of people that would take advantage of this program.

I’m also dubious that there are that many foreigners, flush with cash, who want to purchase homes here, one of which would have to be their primary residence. I could see this being more viable if there was no primary residency requirement, and all the homes could be investment properties.

I don’t think this is a bad idea, but it isn’t a silver bullet for what ails the housing market.  I don’t ultimately see this having a gigantic impact on our excess housing problem.