Percent increase in vacant homes in the United States (2000-2010)
(data from U.S. Census Bureau)
WASHINGTON — Economists question the effectiveness of a proposed plan by lawmakers that aims to increase demand in hard-hit housing markets by drawing wealthy foreign investors.
The plan might increase demand in some “more desirable coastal markets, as opposed to the inner markets that are struggling the most,” said Roger Staiger, a real estate expert at Georgetown University. “It misses the target.”
“Let’s call it what it is. It’s a visa for sale,” he said.
The plan offers an incentive for foreigners investing in real estate worth more than half of a million dollars. The co-sponsors of the legislation, proposed last month, said it will increase demand in supply-heavy housing markets around the country.
The residential visa plan is a provision in the bipartisan Visit USA Act, and it would offer a three-year residential visa to any foreign national who invests at least $500,000 in cash in American real estate–with more than $250,000 going toward a residence in which that person, or family, will live for more than 180 days per year.
“What [this bill is] trying to do is trying to attract high net-worth individuals,” Staiger said. “Real estate is very, very market driven. I don’t see someone injecting $500,000 or $250,000 in equity into Detroit.”
Sens. Charles Schumer, D-N.Y., and Mike Lee, R-Utah, who co-sponsored the bill in October, are not arguing that this provision will solve the mortgage crisis, but they are touting it as a major step in the right direction.
“This concept has the potential to lift demand for the nation’s excess homes,” Schumer said in a statement. “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.”
To put the oversupply of homes in perspective, the number of vacant housing units in the U.S. increased by 43.8 percent from 2000 to 2010, according to the U.S. Census Bureau.
“I doubt whether this could be a major market mover,” said Itzhak Ben-David, assistant professor of finance at The Ohio State University Fisher College of Business. “It’s difficult to estimate how many people will move, but since they cannot work here I think it will turn off many potential buyers.”
“Perhaps if there were many programs like this or many different types of programs, eventually there would be some momentum,” he said.
A spokesman for Lee’s office said that people may be able to find hypothetical negative sides to the law, but that it is a minor concern.
“I don’t think Sen. Schumer or Sen. Lee believe that this is the silver bullet that’s going to fix our economy, but it certainly will help to the extent that those who will use this program will take advantage of it,” Lee’s spokesman added.
Christopher Leinberger, a real estate expert at the Brookings Institution, sees the idea of drawing foreign investment as positive, but said a program such as this would need fewer stipulations in order to have a noteworthy impact. “If I had my druthers I would actually loosen the criteria up,” he said.
Leinberger said if the legislation didn’t require investors to live in these homes then the program would be used by many more people who would buy homes to rent them out.
“It’s probably already baked into the system that many of those subdivisions are going to become, in essence, slums,” he said, adding that there is no difference whether rental properties there are owned by Americans or anyone else.
“We need to do everything we can to encourage foreign investment in our country and particularly in real estate,” Leinberger said.
This proposed program aims to inject equity into the diminished housing markets, but some economists believe that the market will not recover until bottoms out.
“The first thing we need to do is we need to actually foreclose, sell off the properties, clear the market,” Staiger said, “then we can stabilize, then we can actually begin to see and experience price rises.”