A few months ago, I mentioned a unique proposal from Alan Greenspan for addressing our housing-led recession – basically, import desis to shore up the buyer side of the market –
“The most effective initiative, though politically difficult, would be a major expansion in quotas for skilled immigrants,” he said. The only sustainable way to increase demand for vacant houses is to spur the formation of new households. Admitting more skilled immigrants, who tend to earn enough to buy homes, would accomplish that while paying other dividends to the U.S. economy.
Here We Come to Save the Day… Again.
He estimates the number of new households in the U.S. currently is increasing at an annual rate of about 800,000, of whom about one third are immigrants. “Perhaps 150,000 of those are loosely classified as skilled,” he said. “A double or tripling of this number would markedly accelerate the absorption of unsold housing inventory for sale — and hence help stabilize prices.”
In the meantime, several other pundits have come forth with similar proposals including Thomas Friedman –
Leave it to a brainy Indian to come up with the cheapest and surest way to stimulate our economy: immigration.
“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.”“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.”
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p>And most recently the idea gains some support from the WSJ’s OpEd page –
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.
…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.
Alas, in our current political climate, 85K/yr legal, skilled H1B immigrants generate uprorar while 500K/yr illegal, unskilled immigrants are softly supported. Unfortunately, pointing out the absurdity of this just ain’t very PC.
At least reduce the ridiculous backlogs of more than 5 years for Green Cards. People generally will not buy a house on a H-1, but will after getting a GC. The current system approves labor right away, which means that the candidate has passed requirements to be a permanent resident, but then makes folks wait at least 5 years due to the limited quotas.
More on this…
M. Nam
Would the employment conditions support such a level of expanded immigration though? In the current labour market, I would imagine that attitudes towards immigrants will be hardening.
Mortgage defaults in India are lesser as we have paid upfront black money which is sometimes about 50% of the houses value. So you already have equity in the home plus lending criteria is very stringent.
The recession was housing triggered, not housing led. You could buy up every vacant house in the country and the credit markets would still be in bad shape.
Does the US even have enough healthy banks to make loans to a new wave of home buyers at reasonable terms?
Samir,
For most bank financed mortgages you can’t really pay black money.
there are some americans who aren’t exactly super sad that housing prices are dropping…. i mean young americans who live on the coasts.
.Would the employment conditions support such a level of expanded immigration though? In the current labour market, I would imagine that attitudes towards immigrants will be hardening.
this is a drop in the bucket. there’s a pretty good chance that obama & the democrats will pass some sort of amnesty for illegals. if we’re gonna have low skill immigrants who compete with natives on the low end of the labor market, why shouldn’t the higher orders feel some competitive pain? 😉
You are not borrowing 100% but somewhere from 50% to 80% depending on the property.
“Alas, in our current political climate, 85K/yr legal, skilled H1B immigrants generate uprorar while 500K/yr illegal, unskilled immigrants are softly supported. Unfortunately, pointing out the absurdity of this just ain’t very PC.”
Are you really saying that the uproar regarding H-1bs is louder than the unhinged dialogue regarding illegal immigration? I could provide a few thousand links or you could turn on CNN or Fox News tonight.
You still can’t use black money to pay the differential, the lending standards are pretty strict from my experience.
Almost all studies show that high-skilled citizens benefit from increased high-skilled immigration (somewhere around a 3% bump in salaries for high-skilled citizens with a 10% bump in high-skilled immigrant visas). The research on non-high skilled immigration is less clear. Studies have conclusions ranging from no effect, small to non-existent negative effect, and small to non-existent positive effect. The economic impact of immigration is a fairly open question. The important thing to remember is that there is not a static pool of jobs we are competing over.
I do not believe an amnesty program is going to change the job market significantly. Those people are already in the United States and are working – some with work authorization and some without.
11 · umber desi said
But having sunk black money into the up front cost of the home, your on-book equity is significantly less than your ‘real’ equity. Which provides a strong disincentive for defaulting.
AV,
I am not sure if I follow, how do you sink black money in to the upfront cost of the home?
i emphatically disagree with this. in canada we have a fast tracking process that allows so-called ‘business class’ applicants to effectively purchase their way to canadian residency. several years ago, when hong kong was being transitioned to china – many wealthy hongkongers bought choice property on the west coast with no intention of moving in unless things soured with the new chinese govt. it spiked the prices through the roof and made vancouver unaffordable to many. i personally helped this guy (through pind-connection) a couple of years back with some rudimentary directions on getting about when his canadian residency came through. the guy came over, bought a rental property in montreal for 400K down payment and went back after hiring a real estate management guy. this is hardly the business investment the country was lookign for when the program was started. there is no value creation the way i see it and the guy has zero affinity or sense of duty to the country. the question has to be asked whether the country needs money so badly as to offer its residency up for sale to every moneybag out there to whom the country is nothing more than a hotel.
i think this idea propsed in the wsj op-ed is idiotic.
Almost all studies show that high-skilled citizens benefit from increased high-skilled immigration (somewhere around a 3% bump in salaries for high-skilled citizens with a 10% bump in high-skilled immigrant visas).
can you cite the studies so i can dig through the lit myself? (i assume you know it better than i since i know your profession :-).
The research on non-high skilled immigration is less clear. Studies have conclusions ranging from no effect, small to non-existent negative effect, and small to non-existent positive effect. The economic impact of immigration is a fairly open question.
if you say it’s “not clear” i think that’s a pretty strong pointer of its effect on low skilled americans 🙂
I do not believe an amnesty program is going to change the job market significantly. Those people are already in the United States and are working – some with work authorization and some without.
each amnesty changes the expectations of future streams of immigration. the 1986 one did in its wake (i remember people without papers talking about this in the late 80s, though it seems like they’re having to wait a long time).
i think this idea propsed in the wsj op-ed is idiotic.
the WSJ doesn’t believe in borders or the nation-state. see here. liquid labor markets are good for capital 🙂 now i gotta go to home depot and see how cheap i can get roofers…. (i hope no one gets injured in the scrum!)
I am not sure the study Anoop is referring to, there is something here
I am not sure the study Anoop is referring to, there is something here
study of labor movements so there is an enormous literature on this. all things equal it seems entirely plausible that high skilled immigration is good for a given society (though not for all high skilled people, e.g., doctors whose skills are in less short supply because of immigrant doctors). it seems entirely less plausible that the low skilled benefit in a society like the united states with marginal social welfare and weak unions. the big issues here are just like free trade: society as a whole can gain, but it might result in redistributions of wealth and income within a society. an easy way to reduce illegal immigration would be to jack up the minimum wage a lot. this might result in more structural unemployment though. trade offs….
jack up the minimum wage a lot
combined with fascist enforcement of course (which the right-wing business class always opposes for obvious reasons).
I would like to see what Lou Dobbs thinks about this.
Lou Dobbs doesn’t think.
M. Nam
14 · umber desi said
If a house costs 100k, you pay 30k under the table in cash up front. This 30 stays off the books and you officially say the house is being sold for 70k and get a loan for that amount. So although on paper you only have marginal equity in the property (the downpayment on the 70k), in real value and real payments you have 30%+ equity. If you default, this 30% off-book value becomes jeopardized because the market in which the bank will liquidate your property is not the same market as the one you would sell it in. You will not get full value for you house if it needs to be sold. There are many reasons for his – corruption, incentives, time cost, taxation, clean money requirements etc etc. The upshot is you don’t want someone else deciding how much your property is worth when a big chunk of your stake in it does not exist on paper.
Sounds like a bad idea. This is a short-term bandaid fix. Hopefully this administration learns from this debacle and tries to institute a sustainable economic policy.
I’m not an expert on the issue. The Congressional Budget Office did a review a few years back – http://www.cbo.gov/ftpdocs/87xx/doc8711/12-6-Immigration.pdf MPI has pretty extensive and frequently updated reports on its website – http://www.migrationpolicy.org/ITFIAF/TF18_Murray.pdf I think there is also a study from the Congressional Research Service from the late 90s sometime. I’m being genuine when I say that the impact on non-highly skilled immigrants is unclear. The reports reach conclusions across the spectrum. It is an open question, and I am skeptical to any single authoritative answer to the question.
Also, the degree of “brain waste” caused by our immigration system should be noted. See http://www.migrationpolicy.org/pubs/BrainWasteOct08.pdf The half million “unskilled” immigrants that Vinod refers to include highly educated and skilled individuals working in jobs wasting their talents.
I don’t know how many people think of it in those terms though. Usually there are more direct incentives. Private banks use ‘collection agents.’ Public banks use the subtler but equally effecting threat of having your home swallowed by the government bureaucracy.
AV,
Thanks for explaining it, but in my experience in Delhi and Bombay is contrary to what you explain, I haven’t met any builder who wil subsidize the cost by taking money under the table.
Immigration and African-American Employment Opportunities: The Response of Wages, Employment, and Incarceration to Labor Supply Shocks George J. Borjas, Jeffrey Grogger, Gordon H. Hanson
NBER Working Paper No. 12518 Issued in September 2006 NBER Program(s): ITI LS
An NBER digest for this paper is available.
—- Abstract —–
The employment rate of black men, and particularly of low-skill black men, fell precipitously from 1960 to 2000. At the same time, the incarceration rate of black men rose markedly. This paper examines the relation between immigration and these trends in black employment and incarceration. Using data drawn from the 1960-2000 U.S. Censuses, we find a strong correlation between immigration, black wages, black employment rates, and black incarceration rates. As immigrants disproportionately increased the supply of workers in a particular skill group, the wage of black workers in that group fell, the employment rate declined, and the incarceration rate rose. Our analysis suggests that a 10-percent immigrant-induced increase in the supply of a particular skill group reduced the black wage by 4.0 percent, lowered the employment rate of black men by 3.5 percentage points, and increased the incarceration rate of blacks by almost a full percentage point.
umber desi,
I don’t know much about builders. But it was huge problem for my family in the late 90s when we were trying to buy a house in Delhi. Many private sellers simply wouldn’t deal with us because we didn’t have any black money. We ended up paying a bit of a premium on the price of the house we finally got because the seller (reasonably) pointed out that he wouldn’t normally have to pay taxes on the full sale price. I’ve also heard enough additional anecdotal evidence to convince me its a pretty widespread practice. I can speculate on a few reasons why it would be different for builders, but it would be just that – speculation.
I believe you are right about Delhi in the 90s, similar things used to happen with DDA flats in the secondary market as the BV was much lower than the values homeowners placed on the flats and the difference there used to be paid in black.
Immigration and African-American Employment Opportunities: The Response of Wages, Employment, and Incarceration to Labor Supply Shocks George J. Borjas, Jeffrey Grogger, Gordon H. Hanson
borjas is a noted skeptic of mass unskilled immigration (he has some personal insulation from charges of nativism since he’s a cuban immigrant by background). he’s a good place to start for the network of anti-WSJ type papers. i think the big issue here is normative, not empirical: if you don’t care about nationality or citizenship at all immigration is the biggest anti-poverty program there is in the history of the world (perhaps barring the chinese transition to market economics in the 1980s). but my issue is always simple: if a guy gets hit by a truck in peru and gets sent to the emergency room it’s not my direct concern. if the same guy arrives in the USA without papers and gets sent to the emergency room and has no money,
1) i think he should be treated as a matter of law
2) and i think the public funds should reimburse the hospital, including though my direct tax dollars
that’s my normative belief, which i hold without any reference to overall utility calculation. that doesn’t even get into non-material concerns about the nature of a society, as well as the possibility that social systems exhibit non-linearities or stable equilibrium which mass immigration might shift.
The employment rate of black men, and particularly of low-skill black men, fell precipitously from 1960 to 2000. At the same time, the incarceration rate of black men rose markedly.
i’ve actually argued with anoop about this, in particular reference to the choking off of european immigration during world war 1 and the concomitant migration north of blacks to industrial cities (his argument i believe was that the “push” of resurgent southern racism in the late 19th century was the main effect, while i would say that both “push” and “pull” worked syngergistically). the competition between blacks and new immigrants at the low end of the skills totem pole has a long historical record.
btw, the dawg in the photo doesn’t look very neighborly 🙂 just saying, i’d rather have a cat owner next door.
oh crap, anna likes g-sheperds. my bad 🙂
Indian americans sure are stupid. GREENSPAN and FRIEDMAN are calling for indian immigration into America at a time of rising American anger at the economic crisis. Shifting the blame and scapegoating, anyone?
this is a drop in the bucket. there’s a pretty good chance that obama & the democrats will pass some sort of amnesty for illegals.
Ya, that is true; but unlike Shekhar Gupta, I am less hopeful that these guys will be able to work 3 jobs over 15 hours per day to pay back those pesky mortgages; The problem in any case is one of frozen credit; which won’t be solved by even good profitable risks being offered. Banks are just too scared to take on substantial new liabilities at the mo, even if they are creditworthy ones. This is at least true in the UK, I don’t know the details of the US case well enough to make an informed comment but assume it is similar.
just saying, i’d rather have a cat owner next door.
Ahem, you mean blonde cat owner right – 😀
Banks are just too scared to take on substantial new liabilities at the mo, even if they are creditworthy ones. This is at least true in the UK, I don’t know the details of the US case well enough to make an informed comment but assume it is similar.
conrad, the realistic proposals i think they’re floating this to look for people who can pay a substantial part of the mortgage up front. this is being compared to the business visa where if you invest $1 million you get a greencard. we’re talking on the order of tens of thousands rather than hundreds or millions. seems almost symbolic.
oh, and just to reiterate, i’m not looking for female neighbors, PERIOD.
also, one thing that i think is interesting about this plan is that most of the proponents typically believe that globalization is good, that mobility of capital & labor is the way to go. but from what i have read home ownership is strongly correlated with reduced mobility in the united states. this is especially true today when a home stays on the market forever. i have friends who have ended up hiring a property management company to rent out their house so they can move for a new job, something they never expected to do since they thought they could sell in 3-6 months (they sold their previous house in 15 minutes on craig’s list…how times change).
Vinod – quite a few of the H1B holders I know at some point or another have broken the law and had the status of an illegal alien. On a personal level I don’t find much of a difference in terms of vulnerability because, unless you were born in the US, when the economy goes south or your company starts downsizing we all have to come face ot face with the fence.
unless you were born in the US, when the economy goes south or your company starts downsizing we all have to come face ot face with the fence.
what do you mean? those with greencards or naturalized are in the same boat as those with birthright citizenship (though i think greencard holders don’t get some welfare benefits).
The biggest problems I see:
The problem in the US right now is not a labor shortage but a labor surplus. That doesn’t just apply to blue collar work but also to many middle class professions. There’s currently a glut of trained personnel for jobs as diverse as lawyers, college professors and airline pilots.
There is no demographic crisis that needs fixing. This plan might make sense in Europe where birth rates are crashing, but Americans are still making babies just fine. If anything, our population is getting too big. Offshoring/outsourcing, technology, increased efficiency and corporate consolidation will mean that the future American economy will be much less labor-intensive (see 1., above).
Is re-inflating the housing bubble really a good idea?
Much of the discussion on this topic (and possible counter argument to 1. and 2. above) makes the assumption that immigrants are not meant to supplement the existing population but to replace part of it… that they represent an upgrade over Americans who are defective in some way. Even if this is true, however, there is no real replacement… because it is not permitted to expel current residents to make way for immigrants. Plans like these assume that a substantial number of Americans will be leaving the middle class permanently, but that does not mean they will disappear. Are the political and social costs of such an undertaking really sustainable?
The introduction to the paper promptly backs away from the incendiary title and abstract. I think that is the academic equivalent of the cable news ticker.
Regarding home ownership, increased immigrant visas or a legalization program would encourage home ownership. People who are in non-immigrant status (H1b, student, J-1, etc. visas) or out of status are far less likely to put down permanent ties and the investment in a home.
conrad, the realistic proposals i think they’re floating this to look for people who can pay a substantial part of the mortgage up front. this is being compared to the business visa where if you invest $1 million you get a greencard.
Razib, banks are so nervous, they aren’t lending to any except those who can pay a substantial deposit upfront and who have good long-term employment prospects. this is a very narrow segment of the population at the moment. Immigrants, unless they are independently wealthy or millionaires will not come under this assessment imo. oh, and just to reiterate, i’m not looking for female neighbors,
Come on, you know the day you stop looking , is the day you die and I am not judging you PMSL! (yes, I shouldn’t be teasing you like this; but it is sooo much fun 😉
The biggest beneficiaries of such a program would be the chinese. There just aren’t enough indians with the kind of money to buy american homes to make a significant dent in the inventory. Already there are tours organized for chinese in the market for deals on american homes, which they buy as investments.
This is what happens when you reify “the economy” to be an entity by itself. Importing more desis might bring up housing prices again after 5 to 10 years when they can finally get a mortgage, but this does very little to improve the livelihoods of Americans who are American right now.
Immigrants, unless they are independently wealthy or millionaires will not come under this assessment imo.
that’s the only realistic shot, yes, but i assumed that aimed at those who could pay for a home out of pocket in cash. the average home value in the nation is now well south of $200,000 i think. most immigrants don’t start out with FICO scores, right? there’s no way they could get a mortgage unless they’re rich, in which case they wouldn’t need it….
38 · razib said
I’m not sure I follow. Home ownership is a limiting factor in domestic moves. They’re talking about making it an enabling factor for international moves.
I am not sure excessive suburban housing is sustainable for too long unless there is a significant amt. of green component to it and public transportation is revitalized too. Otherwise they just suck the resources.
I agree with this idea. If what is suggested in the article really helps, instead of increasing H1Bs it makes better sense to clear off the backlogs for GCs on a fast track basis. Most GCs have jobs, are well settled here so will naturally invest in houses and be better contributors to the economy.
Effect of fast-tracking desi h1b-gc process on housing will be very localized, though.