The Schumer-Lee housing proposal comes up short as stimulus

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Senators Charles Schumer (D-New York) and Mike Lee (R-Utah) are preparing to introduce a bill they hope will help repair a U.S. housing market reeling from declining prices, rising foreclosures, and excess inventory. Their proposal would grant three-year residence visas (without work permits) to foreigners who pay cash to purchase either one home worth at least $500,000 or two homes both worth at least $250,000. Although the plan deserves credit for seeking to promote international capital flows and labor mobility, it would neither make a measurable dent in the housing sector's backlog nor fix a broken immigration system that hampers our economy's long-run prospects.

The Schumer-Lee proposal does not permit participating homebuyers to have jobs in the United States and would do little to entice entrepreneurs or skilled workers whose productivity contributes to the U.S. economy. Furthermore, it doesn't target the homes that represent the greatest drag on the U.S. housing sector--those in markets with the steepest decline in prices and the most underwater borrowers. Even if this proposal doubled the number of homes worth $250,000 or more that foreigners already purchase here, it would only generate 60,000 additional home sales, tiny in comparison to the more than 5 million existing homes sold annually.

"Ideas like the Schumer-Lee proposal may be directionally positive but pale in comparison to the magnitude of the problem."

A better short-term solution to addressing housing woes would be a liberalized version of the Employment Creation EB-5 green cards. These visas offer lawful permanent residency to foreigners who invest $1 million and create at least ten full-time jobs for U.S. workers. But they have been seriously underused--though the cap is set at 10,000 EB-5 visas annually, less than 1,000 have been issued on average in recent years. Removing the cap and granting the EB-5 visa to foreigners who invest either $1 million in a business or $500,000 in a home would make the visa attractive to more entrepreneurs by lowering the barrier to establishing a life in the U.S. Besides easing housing market problems, this plan would attract business capital and create employment in the United States. And, these new homeowners will not be a fiscal burden on the state--in addition to bringing skills and new ideas, they will pay considerable property tax on their expensive homes.

Schumer and Lee's bill would likely only attract vacationers and retirees, groups that already invest in the U.S. housing market, particularly in Florida, California, Texas, and Arizona. The National Association of Realtors estimates that nonresident foreigners purchased U.S. property worth $41 billion for the year ending March 2011, with most of these houses acquired as vacation homes by wealthy foreign investors and retirees who spend a few months a year there. Our proposal will not only help the housing market in the short term, but will also entice entrepreneurial investors, adding to the already enormous contribution of immigrants whose companies have been estimated to produce over $50 billion in U.S. sales annually.

Let's face it--even our modified proposal isn't a real fix to our housing problems when nearly 11 million homeowners owe more on their mortgage than the current value of their home.

Ideas like the Schumer-Lee proposal may be directionally positive but pale in comparison to the magnitude of the problem. Similarly, the Obama Administration's Home Affordable Modification Program (HAMP) helped only 700,000 homeowners though the President had projected 3 to 4 million homeowners would benefit. The Home Affordable Refinance Program (HARP) helped nearly 900,000 homeowners--well short of its initial goal of 4 to 5 million. And the latest effort by the Administration, reforms to HARP announced this week, have set a goal of facilitating another 900,000 refinances. Even by these modest standards, it seems likely that the effects of the Schumer-Lee plan would be paltry.

But the good news is that the core mechanism of our proposal is a key part of a long-run growth strategy: skilled immigration. Bringing more skilled immigrants to the United States can modestly reduce the overhang in the U.S. housing market. But more importantly, attracting more high-skilled foreigners to the U.S. can boost the ailing housing sector indirectly by assisting the macro economy. These indirect effects are ultimately the best hope for the housing sector.

UC Davis Professor Giovanni Peri, an expert in labor market consequences of immigration, summarized his previous work by noting, "Data show that, on net, immigrants expand the U.S. economy's productive capacity, stimulate investment, and promote specialization that in the long run boosts productivity. Consistent with previous research, there is no evidence that these effects take place at the expense of jobs for workers born in the United States."

If Senators Schumer and Lee truly want to pursue a policy of economic growth through immigration, we would point them to a broader pro-market strategy outlined by a colleague of ours, AEI visiting scholar Pia Orrenius, and her coauthor, Madeline Zavodny, in their book Beside the Golden Door. Orrenius and Zavodny propose an auction process in which the government sells permits to employers to hire foreign workers. If pursued on a large scale, such immigration policy reform will make it easier to hire skilled workers whose contribution lasts for generations. And, by aiding the U.S. recovery and growing the workforce, it can also serve as a modest tonic for the U.S. housing market.

Alex Brill is a research fellow and Rohan Poojara is a research assistant at AEI.

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