Misguided Schumer-Lee Bill Offers Visas for Foreign-Born Homebuyers
"Jobs that Americans won't do" is a weak, if common rationale for high levels of immigration. Get set for an equally dubious idea to justify immigration: "housing that Americans can't buy." Senators Charles Schumer, D-N.Y., and Mike Lee, R-Utah, are believers. And they're offering a sweet deal. On Thursday, October 20, the two lawmakers unveiled legislation, the Visa Improvements to Stimulate International Tourism to the United States of America Act, or VISIT-USA Act (S.1746), one of whose elements would provide renewable three-year resident visas to foreign nationals who invest at least $500,000 in residential real estate here. The plan thus assumes both the need for a housing industry bailout and a large injection of foreign capital toward that end. Supporters should spend some time pondering the downside.
Since the collapse of the home mortgage industry during 2007-08 (and the only modest recovery since), reversing the collapse has become a growth industry in its own right. Among key steps, the Bush administration created a temporary first-time homebuyer tax credit, which Congress and the Obama administration 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 last Monday, 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 - one in four with a mortgage - are in this situation, though only about a tenth of that would be eligible for assistance.
The home purchase incentive of the VISIT-USA Act is yet another 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, meanwhile, 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 all applicants to criminal and security background checks. If approved, participants would not be eligible for Medicare, Medicaid and Social Security benefits. Their visas would 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 would be allowed to bring spouses and children under the age of 18 from their country of origin.
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."
A predictable range of interest groups also have coalesced around the housing visa provision and its larger legislation. U.S. Chamber of Commerce President Thomas Donohue, for example, issued the following statement about VISIT-USA:
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. This is a loss we can ill afford in today's economy. We can address these barriers and still protect the security of the United States. The Schumer-Lee bill meets these twin goals and we look forward to working with the Congress to achieve enactment of this important legislation.
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 a TV interview this August with PBS host Charlie Rose, endorsed the idea of encouraging "rich immigrants" to buy homes here. "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 this bandwagon, however, it is important to remember that the first-time homebuyer tax credit and HAMP programs, each covered extensively by National Legal and Policy Center, also were touted by supporters from the outset as too good to fail. Yet each experienced major unexpected roadblocks. A brief recap should highlight the need for skepticism over the Schumer-Lee proposal.
The now-expired 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, which is primed for expansion if the administration gets its way, 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 $2.4 billion has been spent to date. 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).
The proposed legislation at hand, VISIT-USA, though with a much different mechanism, also would boost homeownership demand. And it ostensibly would do so without imposing any taxpayer burden - at least not directly. But there are major pitfalls.
First, consider the composition of the buyers. Who has $500,000 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 to go around. Any number of disreputable investors may participate simply to acquire a prized U.S. 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 likelihood of job displacement of the native-born, we already give out work visas (E1 through E5, ranked according to priority). The VISIT-USA bill's housing visa, at bottom, is a hybrid of the B-2 and EB-5 visas. The B-2 provides a temporary visa to visitors to this country; the EB-5 provides a green card to foreign investors who sink $500,000 or more into a U.S.-based business. Common sense would dictate that if someone qualifies for an EB-5 visa, that person pretty much can afford an expensive home. The Schumer-Lee bill would be both redundant and expensive.
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 temporary visas to all 19 of the 9/11 terrorist hijackers - already is 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 properly vet all comers.
And that's just the front end of the security equation. During the visa holder's stay, the U.S. Department of Homeland Security's Immigration and Customs Enforcement (ICE), another overworked agency, would have an extra mandate 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 is to conduct 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. Then there is the issue of monitoring the movement of persons choosing not to stay in their homes but who remain in America. As it is, nearly half of our estimated 12 million illegal immigrants originally 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 always can plead innocent if criminal activity is suspected or discovered among tenants. ICE effectively would have to monitor rental applicants as well as buyers. Contrary to Senator Schumer's assurances, all of this will cost taxpayers.
Third, even assuming such logistical difficulties are easily 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 idea 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 by First Quarter 2011 it had fallen to 2.6 percent. These numbers aren't indicative of a crisis. The housing market inevitably 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 alone accounted for, respectively, at least 5.5 percent and 4.3 percent of all home sales for July 2011, according to MDA DataQuick. Sally Daley, a real estate agent in Vero Beach, Fla., estimates that 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 wealthy foreign-born, quite logically, 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, a brokerage serving the well-heeled the world over. 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 list price of a single-family home 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 this as well: 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, for the last several years has been 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 expensive San Francisco to far cheaper Stockton as a place to live. They already have serious money. An area's high vacancy rate (and low prices) won't be that much of a selling point for them. Yet given that the stated goal 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 even further in highly expensive markets like the San Francisco-Oakland metro area.
Given such unanswered questions - unanswered by supporters, at any rate - Congress should weigh these potential drawbacks before even considering voting on the VISIT-USA bill. It's crucial to note that the lead player is Charles Schumer, who chairs the Senate Judiciary Committee's subcommittee on Immigration, Refugees and Border Security. Schumer long has been one of Capitol Hill's biggest boosters of amnesty for persons illegally residing here. Indeed, with the exception of the late Ted Kennedy, D-Mass., and the retired Arlen Specter, R-Pa., it would be hard to imagine anyone in the Senate in recent years as obsessed with promoting mass immigration as Charles Schumer; one can be thankful Schumer hasn't yet acquired Ted Kennedy's political skills. Utah Senator Mike Lee, a freshman inheriting Bob Bennett's seat, can be seen as along for the ride, lending a misleading aura of bipartisanship and free-market economics.
Ultimately, the visa proposal speaks of a lack of public accountability among much of our nation's leadership. Why would anyone feel compelled to import large numbers of foreign-born to prop up an economy whose downturn in large measure has been fueled by mass immigration? Do they not trust us to solve own problems? In the end, there is no such thing as "housing Americans can't buy." There is only housing Americans can't buy at a given asking price. If house prices have to come down to generate sales, so be it. Real estate commissions and property tax receipts may be smaller for a few more years, but that's a small price to pay to maintain American security, sovereignty and rule of law. At least one major player in the real estate industry, Richard Smith, CEO of Realogy Corp., parent company of Coldwell Banker and Century 21, understands the issue: "We have a lot of Americans who are willing to buy. We just have to fix the economy."